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AUTHENTICATED , 
US. GOVERNMENT 
INFORMATION ^ 


UNITED STATES NEGOTIATING OBJECTIVES FOR 
THE WTO SEATTLE MINISTERIAL MEETING 


HEARING 

BEFORE THE 

SUBCOMMITTEE ON TRADE 

OF THE 

COMMITTEE ON WAYS AND MEANS 
HOUSE OF REPRESENTATDH]S 

ONE HUNDRED SIXTH CONGRESS 

FIRST SESSION 

AUGUST 5, 1999 

Serial 106-52 

Printed for the use of the Committee on Ways and Means 



66-092 CC 


U.S. GOVERNMENT PRINTING OFFICE 
WASHINGTON : 2000 


COMMITTEE ON WAYS AND MEANS 

BILL ARCHER, Texas, Chairman 


PHILIP M. CRANE, Illinois 
BILL THOMAS, California 
E. CLAY SHAW, jR., Florida 
NANCY L. JOHNSON, Connecticut 
AMO HOUGHTON, New York 
WALLY HERGER, California 
JIM McCRERY, Louisiana 
DAVE CAMP, Michigan 
JIM RAMSTAD, Minnesota 
JIM NUSSLE, Iowa 
SAM JOHNSON, Texas 
JENNIFER DUNN, Washington 
MAC COLLINS, Georgia 
ROB PORTMAN, Ohio 
PHILIP S. ENGLISH, Pennsylvania 
WES WATKINS, Oklahoma 
J.D. HAYWORTH, Arizona 
JERRY WELLER, Illinois 
KENNY HULSHOF, Missouri 
SCOTT McINNIS, Colorado 
RON LEWIS, Kentucky 
MARK FOLEY, Florida 


CHARLES B. RANGEL, New York 
FORTNEY PETE STARK, California 
ROBERT T. MATSUI, California 
WILLIAM J. COYNE, Pennsylvania 
SANDER M. LEVIN, Michigan 
BENJAMIN L. CARDIN, Maryland 
JIM McDermott, Washington 
GERALD D. KLECZKA, Wisconsin 
JOHN LEWIS, Georgia 
RICHARD E. NEAL, Massachusetts 
MICHAEL R. McNULTY, New York 
WILLIAM J. JEFFERSON, Louisiana 
JOHN S. TANNER, Tennessee 
XAVIER BECERRA, California 
KAREN L. THURMAN, Florida 
LLOYD DOGGETT, Texas 


A.L. Singleton, Chief of Staff 
Janice Mays, Minority Chief Counsel 


Subcommittee on Trade 
PHILIP M. CRANE, Illinois, Chairman 


BILL THOMAS, California 
E. CLAY SHAW, jR., Florida 
AMO HOUGHTON, New York 
DAVE CAMP, Michigan 
JIM RAMSTAD, Minnesota 
JENNIFER DUNN, Washington 
WALLY HERGER, California 
JIM NUSSLE, Iowa 


SANDER M. LEVIN, Michigan 
CHARLES B. RANGEL, New York 
RICHARD E. NEAL, Massachusetts 
MICHAEL R. McNULTY, New York 
WILLIAM J. JEFFERSON, Louisiana 
XAVIER BECERRA, California 


Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records 
of the Committee on Ways and Means are also published in electronic form. The printed 
hearing record remains the official version. Because electronic submissions are used to 
prepare both printed and electronic versions of the hearing record, the process of converting 
between various electronic formats may introduce unintentional errors or omissions. Such occur- 
rences are inherent in the current publication process and should diminish as the process 
is further refined. 



CONTENTS 


Page 

Advisory of July 8, 1999, announcing the hearing 2 

WITNESSES 

Office of the United States Trade Representative, Hon. Susan Esserman, 
Deputy United States Trade Representative 24 


Ambrose, Kathleen A., Chemical Manufacturers Association 143 

American Council of Life Insurance, Charles Lake 159 

American Family Life Assurance Company Japan, Charles Lake 159 

American Farm Bureau Federation, Dean Kleckner 94 

American Federation of Labor and Congress of Industrial Organizations, 

David Smith 154 

American Forest & Paper Association, John Dillon 99 

Arizona Department of Agriculture, Sheldon R. Jones 174 

American Insurance Association, Charles Lake 159 

Becerra, Hon. Xavier, a Representative in Congress from the State of Cali- 
fornia 10 

Cargill, Incorporated, Ernest S. Micek 60 

Chemical Manufacturers Association, Kathleen A. Ambrose 143 

Chiquita Brands International, Inc., Steven G. Warshaw 134 

Chubb Corporation, Dean R. O’Hare 68 

Coalition of Service Industries, Dean R. O’Hare 68 

Dawson, Rhett, Information Technology Industry Council 169 

Dillon, John, International Paper, and the American Forest & Paper Associa- 
tion 99 

Emergency Committee for American Trade, Ernest S. Micek 60 

Health Insurance Association of America, Charles Lake 159 

Information Technology Industry Council, Rhett Dawson 169 

International Insurance Council, Charles Lake 159 

International Paper, John Dillon 99 

Jones, Sheldon R., Arizona Department of Agriculture 174 

Kleckner, Dean, American Farm Bureau Federation 94 

Lake, Charles, American Family Life Assurance Company Japan, the Amer- 
ican Council of Life Insurance, America Insurance Association, Health In- 
surance Association of America, International Insurance Council, and Rein- 
surance Association of America 159 

Lambert, Charles D., National Cattlemen’s Beef Association 138 

Micek, Ernest S., Cargill, Incorporated and the Emergency Committee for 

American Trade 60 

Miller, Hon. Dan, a Representative in Congress from the State of Florida 15 

National Association of Manufacturers, William Weiller 129 

National Cattlemen’s Beef Association, Charles D. Lambert 138 

National Wildlife Federation, Mark Van Putten 104 

O’Hare, Dean R., Chubb Corporation, and Coalition of Service Industries 68 

President’s Advisory Committee on Trade Policy and Negotiations, John E. 

Pepper 55 

Procter & Gamble Company, John E. Pepper 55 

Purafil, Inc., William Weiller 129 

Regula, Hon. Ralph, a Representative in Congress from the State of Ohio 13 

Reinsurance Association of America, Charles Lake 159 

Sandler, Gilbert Lee, Sandler Travis & Rosenberg, P.A., and the Washington 

International Insurance Company 164 

Smith, David, American Federation of Labor and Congress of Industrial Orga- 
nizations 154 

Van Putten, Mark, National Wildlife Federation 104 

Warshaw, Steven G., Chiquita Brands International, Inc 134 

Washington International Insurance Company, Gilbert Lee Sandler 164 


hi 



Page 


Weiller, William, Purafil, Inc., and the National Association of Manufactur- 
ers 

Weller, Hon. Jerry, a Representative in Congress from the State of Illinois 

Submissions for the Record 

Ad Hoc WTO Round Processed Food Coalition: Bestfoods, Campbell Soup, 
ConAgra, General Mills, Herbalife International, J.R. Simplot Co., Lamb- 
Weston, National Food Processors Association, National Potato Council, 
Nestle USA, Oregon Potato Commission, Pepperidge Farm, PepsiCo, Pet 
Food Institute, Procter & Gamble, Ralston Purina, Tricon Global Res- 
taurants, Welch’s, Wm. Wrigley Jr. Company, John F. McDermid, joint 

letter 

Aluminum Association, Inc., statement and attachment 

American Crop Protection Association; American Forest and Paper Associa- 
tion; American Plastics Council; Biotechnology Industry Organization; 
Chemical Manufacturers Association; Chemical Specialties Manufacturers 
Association; Coalition for Truth in Environmental Marketing Information; 
National Association of Manufacturers; National Fisheries Institute; Na- 
tional Foreign Trade Council; Soap and Detergent Association, New York, 
NY; and U.S. Council for International Business, New York, NY; joint 

statement and attachments 

American Free Trade Association, Miami, FL, statement 

American Iron and Steel Institute, statement 

American Lands Alliance, Antonia Juhasz and Faith Campbell, statement 

and attachments 

American Sugar Alliance, James Wm. Johnson, Jr., joint statement 

American Textile Manufacturers Institute, statement and attachments 

Association of International Automobile Manufacturers, Inc., Arlington, VA, 

statement and attachment 

Black, Edward J., Computer & Communications Industry Association, and 

Pro Trade Group, joint statement 

Boyd, Robert T., Torrington Company, Torrington, CT, statement 

Brown, Larry R., Timken Company, Canton, OH, letter 

Bunden, Kenichi, Floral Trade Council, Haslett, MI, statement 

Business Roundtable, statement 

Business Software Alliance, Robert W. Holleymann II, statement 

Campbell, Faith, American Lands Alliance, statement and attachments 

Center for International Environmental Law, David R. Downes; National 
Wildlife Federation, Jake Caldwell; Sierra Club, San Francisco, CA, Dan 
Seligman; World Wildlife Fund, David Schorr; Friends of the Earth, Andrea 
Durbin; Natural Resources Defense Council, Justin Ward; Greenpeace USA, 
Scott Paul; Defenders of Wildlife, and Community Nutrition Institute, Rina 
Rodriguez; American Lands Alliance, Antonia Juhasz; Consumer’s Choice 
Council, Cameron Griffith; Earthjustice Legal Defense Fund, San Francisco, 
CA, Martin Wagner; Institute for Agriculture and Trade Policy, Min- 
neapolis, MN, Kristin Dawkins; and Pacific Environment and Resources 

Center, Oakland, CA, Doug Norlen; joint letter and attachment 

Center for Science in the Public Interest, Benjamin Cohen, statement 

Chocolate Manufacturers Association, McLean, VA, Stephen G. Lodge, joint 

statement 

Cohen, Benjamin, Center for Science in the Public Interest, statement 

Computer & Communications Industry Association, Edward J. Black, joint 

statement 

Consumer Federation of America, Arthur S. Jaeger, statement 

Crawford, Bob, Florida Department of Agriculture & Consumer Services, 

Tallahassee, FL, statement and attachments 

DaimlerChrysler Corporation, statement 

Defenders of Wildlife, statement 

Distilled Spirits Council of the United States, Inc., statement 

Dresser-Rand Company, The Woodlands, TX, statement 

Federal Express Corporation, Memphis, TN, M. Rush O’Keefe, Jr., statement . 

Floral Trade Council, Haslett, MI, Kenichi Bunden, statement 

Florida Department of Agriculture & Consumer Services, Tallahassee, FL, 

Bob Crawford, statement and attachments 

Grocery Manufacturers of America, Mary Sophos, statement 

Harvey, Pharis J., International Labor Rights Fund, statement 

Hatano, Daryl, Semiconductor Industry Association, statement 

Holleymann, Robert W., II, Business Software Alliance, statement 

Intellectual Property Committee, statement 


129 

7 


184 

187 


189 

195 

199 

204 

213 

219 

221 

264 

353 

349 

284 

228 

245 

204 


248 

257 

259 

257 

264 

267 

287 

268 
270 
272 
275 
279 
284 

287 

291 

298 

343 

245 

293 


iv 



IBC, Inc., John F. McDermid, joint letter 

International Labor Rights Fund, Pharis J. Harvey, statement 

International Mass Retail Association, Arlington, VA, statement 

ITT Industries, White Plains, NY, Wingate Lloyd, joint statement 

J.C. Penney Company, Inc., and National Retail Federation, joint statement .. 

Jaeger, Arthur S., Consumer Federation of America, statement 

Johnson, James Wm., Jr., United States Beet Sugar Association, and Amer- 
ican Sugar Alliance, joint statement 

Judge, Steve, Securities Industry Association, statement and attachments 

Juhasz, Antonia, American Lands Alliance, joint statement and attachments . 

Labor/Industry Coalition for International Trade, statement 

Libbey Inc., Toledo, OH, Arthur H. Smith, statement 

Lloyd, Wingate, U.S. Chamber of Commerce, and ITT Industries, White 

Plains, NY, joint statement 

Lodge, Stephen G., National Confectioners Association, and Chocolate Manu- 
facturers Association, McLean, VA, joint statement 

McDermid, John F., IBC, Inc., and Ad Hoc WTO Round Processed Food 
Coalition: Bestfoods, Campbell Soup, ConAgra, General Mills, Herbalife 
International, J.R. Simplot Co., Lamb-Weston, National Food Processors 
Association, National Potato Council, Nestle USA, Oregon Potato Commis- 
sion, Pepperidge Farm, PepsiCo, Pet Food Institute, Procter & Gamble, 
Ralston Purina, Tricon Global Restaurants, Welch’s, and Wm. Wrigley Jr. 

Company, joint letter 

Micron Technology, Inc., Boise, ID, statement 

National Confectioners Association, McLean, VA, Stephen G. Lodge, joint 

statement 

National Retail Federation, and J.C. Penney Company, Inc., joint statement .. 
North Dakota Durum Wheat Farmers: Jerome Anderson, Ross, ND; Marshall 
Craft, Stanley, ND; Louis Kuster, Stanley, ND; and Curt Trulson, Ross, 

ND, statement 

O’Keefe, M. Rush, Jr., Federal Express Corporation, Memphis, TN, statement 

Pharmaceutical Research and Manufacturers of America, statement 

PPG Industries, Inc., Pittsburgh, PA, statement 

Pro Trade Group, Edward J. Black, joint statement 

Quinn, Hon. Jack, a Representative in Congress from the State of New 

York, statement 

Ranchers-Cattlemen Action Legal Fund (R-CALF), Columbus, MT: Midland 
Bull Test, Columbus, MT, Leo R. McDonnell, Jr.; Sullivan Kelley Farm, 
Meeker, CO, Kathleen S. Kelley; R-CALF, Columbus, MT, John Lockie; 
R-CALF, Miles City, MT, Jack McNamee; Herried Livestock Market, Inc., 
Herreid, SD, Herman Schumacher; Open Spear Ranch, Melville, MT, Den- 
nis McDonald; R-CALF, Melville, M'T, Bill Donald; R-CALF, Big Timber, 
MT, Chuck Rein; and R-CALF, Columbus, MT, John Patterson; joint state- 
ment 

Rubber and Plastic Footwear Manufacturers Association, statement and at- 
tachment 

Safe Alternatives for our Forest Environment, Hayfork, CA, Bill Welsch, 

letter 

Securities Industry Association, Steve Judge, statement and attachments 

Semiconductor Industry Association, Daryl Hatano, statement 

Smith, Arthur H., Libbey Inc., Toledo, OH, statement 

Sophos, Mary, Grocery Manufacturers of America, statement 

Timken Company, Canton, OH, Larry R. Brown, letter 

Torrington Company, Torrington, CT, Robert T. Boyd, statement 

U.S. Chamber of Commerce, Wingate Lloyd, joint statement 

U.S. Integrated Carbon Steel Producers: Bethlehem Steel Corp., U.S. Steel 
Group, LTV Steel Co., Ispat Inland Inc., and National Steel Corp., joint 

statement 

United States Beet Sugar Association, James Wm. Johnson, Jr., joint state- 
ment 

U.S. Virgin Islands, Government of: 

Statement 

Belair Watch Corporation, Hampden Watch Company, Inc., Progress 
Watch Co., Unitime Industries, Inc., and Tropex, Inc., Joint statement . 
Welsch, Bill, Safe Alternatives for our Forest Environment, Hayfork, CA, 
letter 


Page 

184 

298 

300 

303 

306 

267 

213 

338 

204 

308 

311 

303 

259 


184 

314 

259 

306 


316 
279 

317 
323 
264 

328 


328 

334 

336 

338 

343 

311 

291 

349 

353 

303 


355 

213 

357 

363 

336 


V 




UNITED STATES NEGOTIATING OBJECTIVES 
FOR THE WTO SEATTLE MINISTERIAL 
MEETING 


THURSDAY, AUGUST 5, 1999 

House of Representatives, 

Committee on Ways and Means, 

Subcommittee on Trade, 

Washington, DC. 

The Subcommittee met, pursuant to call, at 10:20 a.m., in room 
1100, Longworth House Office Building, Hon. Philip M. Crane 
(Chairman of the Subcommittee) presiding. 

[The advisory announcing the hearing follows:] 


( 1 ) 



2 


ADVISORY 

FROM THE COMMITTEE ON WAYS AND MEANS 

SUBCOMMITTEE ON TRADE 

FOR IMMEDIATE RELEASE Contact: (202) 225-1721 

July 8, 1999 
No. TR-13 


Crane Announces Hearing on United States Nego- 
tiating Objectives for the WTO Seattle Ministe- 
rial Meeting 

Congressman Philip M. Crane (R-IL), Chairman of the Subcommittee on Trade 
of the Committee on Ways and Means, today announced that the Subcommittee will 
hold a hearing on United States negotiating objectives for the upcoming World 
Trade Organization (WTO) Ministerial. The hearing will take place on Thursday, 
August 6, 1999, in the main Committee hearing room, 1100 Longworth House Office 
Building, beginning at 10:00 a.m. 

Oral testimony at the hearing will be from both invited and public witnesses. In- 
vited witnesses will include Ambassador Susan Esserman, Deputy United States 
Trade Representative. Also, any individual or organization not scheduled for an oral 
appearance may submit a written statement for consideration by the Committee and 
for inclusion in the printed record of the hearing. 

BACKGROUND: 

The Uruguay Round was the eighth round or series of multilateral trade negotia- 
tions under the General Agreement on Tariffs and Trade (GATT). The agreements 
reached at the end of 1994 during the Uruguay Round were noteworthy in that they 
greatly expanded coverage of GATT rules beyond manufactured goods trade to in- 
clude agricultural trade, services trade, trade-related investment measures, intellec- 
tual property rights, and textiles. 

One of the most visible accomplishments of this multilateral round was to estab- 
lish the WTO to administer the GATT agreements and to settle disputes among 
WTO members. The Uruguay Round agreement also calls for the resumption of ne- 
gotiations by the year 2000 to further liberalize trade in agriculture and services, 
as well as examine government procurement practices and enforcement of intellec- 
tual property rights. The negotiations will begin formally at the WTO Ministerial 
conference to be hosted by the United States in Seattle, Washington, from Novem- 
ber 30 through December 4, 1999. It will be the largest trade event ever held in 
the United States and will bring together representatives of the 133 member coun- 
tries of the WTO. The members will consider the procedures and substance of the 
so-called “built-in” WTO agenda, as well as other issues such as transparency and 
possible reforms to the dispute settlement system. 

In announcing the hearing, Chairman Crane said: “The Seattle Ministerial meet- 
ing represents a much needed opportunity for U.S. workers and businesses. It holds 
the promise of renewing momentum to reduce the continuing barriers facing U.S. 
agricultural, goods, and services exports. It is important that Congress monitor the 
development of United States negotiating objectives for the Seattle Ministerial, as 
well as the adequacy of logistical and other preparations for this historic event.” 



3 


FOCUS OF THE HEARING: 

The focus of the hearing will be to examine United States preparations for the 
Seattle Ministerial Meeting. Testimony will be received on specific objectives for the 
negotiations, the outlook for a successful meeting, and the anticipated impact of 
launching a new round of WTO negotiations on jobs, wages, economic opportunity, 
and the future competitiveness of U.S. manufacturers and service providers. 

DETAILS FOR SUBMISSIONS OF REQUESTS TO BE HEARD: 

Requests to be heard at the hearing must be made by telephone to Traci Altman 
or Pete Davila at (202) 225-1721 no later than the close of business, Monday, July 
26, 1999. The telephone request should be followed by a formal written request to 
A.L. Singleton, Chief of Staff, Committee on Ways and Means, U.S. House of Rep- 
resentatives, 1102 Longworth House Office Building, Washinrton, D.C. 20515. The 
staff of the Subcommittee on Trade will notify by telephone those scheduled to ap- 
pear as soon as possible after the filing deadline. Any questions concerning a sched- 
uled appearance should be directed to the Subcommittee on Trade staff at (202) 
225-6649. 

In view of the limited time available to hear witnesses, the Subcommittee may 
not be able to accommodate all requests to be heard. Those persons and organiza- 
tions not scheduled for an oral appearance are encouraged to submit written state- 
ments for the record of the hearing. All persons requesting to be heard, whether 
they are scheduled for oral testimony or not, will be notified as soon as possible 
after the filing deadline. 

Witnesses scheduled to present oral testimony are required to summarize briefly 
their written statements in no more than five minutes. THE FIVE-MINUTE RULE 
WILL BE STRICTLY ENFORCED. The full written statement of each witness will 
be included in the printed record, in accordance with House Rules. 

In order to assure the most productive use of the limited amount of time available 
to question witnesses, all witnesses scheduled to appear before the Subcommittee 
are required to submit 200 copies, along with an IBM compatible 3.5-inch diskette 
in WordPerfect 5.1 format, of their prepared statement for review by Members prior 
to the hearing. Testimony should arrive at the Subcommittee on Trade office, room 
1104 Longworth House Office Building, no later than Tuesday, August 3, 1999. Fail- 
ure to do so may result in the witness being denied the opportunity to testify in 
person. 

WRITTEN STATEMENTS IN LIEU OF PERSONAL APPEARANCE: 

Any person or organization wishing to submit a written statement for the printed 
record of the hearing should submit six (6) single-spaced copies of their statement, 
along with an IBM compatible 3.5-inch diskette in WordPerfect 5.1 format, with 
their name, address, and hearing date noted on a label, by the close of business, 
Thursday, August 19, 1999, to A.L. Singleton, Chief of Staff, Committee on Ways 
and Means, U.S. House of Representatives, 1102 Longworth House Office Building, 
Washington, D.C. 20515. If those filing written statements wish to have their state- 
ments distributed to the press and interested public at the hearing, they may de- 
liver 200 additional copies for this purpose to the Subcommittee on Trade office, 
room 1104 Longworth House Office Building, by close of business the day before the 
hearing. 

FORMATTING REQUIREMENTS: 


Each statement presented for printing to the Committee by a witness, any written statement 
or exhibit submitted for the printed record or any written comments in response to a request 
for written comments must conform to the guidelines listed below. Any statement or exhibit not 
in compliance with these guidelines will not be printed, but will be maintained in the Committee 
files for review and use by the Committee. 

1. All statements and any accompanying exhibits for printing must be submitted on an IBM 
compatible 3.5-inch diskette in WordPerfect 5.1 format, typed in single space and may not ex- 
ceed a total of 10 pages including attachments. Witnesses are advised that the Committee will 
rely on electronic submissions for printing the official hearing record. 



4 


2. Copies of whole documents submitted as exhibit material will not be accepted for printing. 
Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material 
not meeting these specifications will be maintained in the Committee files for review and use 
by the Committee. 

3. A witness appearing at a public hearing, or submitting a statement for the record of a pub- 
lic hearing, or submitting written comments in response to a published request for comments 
by the Committee, must include on his statement or submission a list of all clients, persons, 
or organizations on whose behalf the witness appears. 

4. A supplemental sheet must accompany each statement listing the name, company, address, 
telephone and fax numbers where the witness or the designated representative may be reached. 
This supplemental sheet will not be included in the printed record. 

The above restrictions and limitations apply only to material being submitted for printing. 
Statements and exhibits or supplementary material submitted solely for distribution to the 
Members, the press, and the public during the course of a public hearing may be submitted in 
other forms. 


Note: All Committee advisories and news releases are available on the World 
Wide Web at “HTTP:/AVWW.HOUSE.GOVAVAYS_MEANS/”. 


The Committee seeks to make its facilities accessible to persons with disabilities. 
If you are in need of special accommodations, please call 202-225-1721 or 202-226- 
3411 TTDATTY in advance of the event (four business days notice is requested). 
Questions with regard to special accommodation needs in general (including avail- 
ability of Committee materials in alternative formats) may be directed to the Com- 
mittee as noted above. 


Chairman Crane. We are going to have a series of interruptions 
today with a heavy legislative schedule, and so I think it is essen- 
tial that we commence. Our first panel consists of our colleagues, 
Jerry Weller, Xavier Becerra, Ralph Regula, Dan Miller and Jack 
Quinn. 

But before you fellows testify, I want to welcome everyone here 
this morning. The Trade Subcommittee meeting today is to con- 
sider the U.S. negotiating objectives for the WTO, World Trade Or- 
ganization, ministerial meeting that will be held in Seattle, Wash- 
ington, from November 30 until December 3 of this year, and the 
Trade Subcommittee intends to be out there for part of that min- 
isterial meeting before heading to the Far East. 

Today, we intend to have an open give-and-take regarding what 
U.S. priorities should be for this important meeting, the first of its 
kind to be held in the United States. As my colleagues know, I am 
a strong supporter of the WTO. I think I can speak for most of my 
colleagues here when I say that we are fully supportive of achiev- 
ing a successful launch of a new round of world trade negotiations 
in Seattle. 

A consensus seems to have emerged among our trading partners 
that the new round should be concluded within 3 years, by the end 
of 2002. While comfortable with the shorter timeframe, I recognize 
that these will be tough negotiations given the intractable prob- 
lems that the U.S. and other countries have with Europe and 
Japan in the agriculture and other sectors. 

Since its establishment in 1995, the WTO has functioned effec- 
tively, aiding our efforts to ensure that job-creating U.S. exports 
are receiving fair access to 134 nations around the world. As the 
world’s greatest exporter, the best engine for our impressive eco- 



5 


nomic growth has been expanding international trade under the 
oversight of the WTO. 

Almost 12 million U.S. jobs are supported by exports. When we 
increase exports in particular, we are increasing the number of 
high-wage, high-tech jobs in cities and towns across America. 

The U.S. wins with fair rules that are promoted by an institution 
that has the moral authority to ensure that they are followed. 
Americans instinctively understand principles of fair play, and I 
believe overall support for the WTO will build as understanding 
grows about how this institution promotes economic growth world- 
wide. The high visibility of the meeting in Seattle creates a great 
opportunity to expand appreciation of this important institution. 

The dispute settlement mechanisms of the WTO have in general 
worked in our favor. Of the cases brought by the U.S., we have won 
or favorably settled 22 and lost only two. We must assure, however, 
that our trading partners, particularly the European Union, come 
into compliance quickly when the WTO rules against them. Despite 
our tremendous record in the WTO, I am very concerned about the 
recent decision against the U.S. foreign sales corporation provision. 
We will hold a hearing in the Ways and Means Committee in the 
fall to discuss this issue. 

With that, I want to recognize the Ranking Member of the Sub- 
committee and thank him for helping us assemble such a distin- 
guished set of witnesses for our discussion today. 

Mr. Levin. 

Mr. Levin. Thank you, Mr. Chairman. And before I start with 
my opening statement, I would like to apologize on behalf of I 
would think all the Members and surely those on the Democratic 
side. This hearing as it turns out is being held at the same time 
as the floor action on the tax bill, and so some of us will be ducking 
in and out, and I will be leaving after this to participate in the de- 
bate and come back as soon as I can. 

And, again, many of the Members will be in and out and we are 
sorry that this hearing is being punctuated. There is also, for 
Democrats, a third event going on at this very same time and as 
I look around, it is only Xavier and I who are not there. 

Mr. Chairman, thank you for calling today’s hearing, on the im- 
portant subject of the upcoming WTO ministerial meeting to be 
held in Seattle later this year. It promises to be a historic situation 
marking the launch of the next round of world trade negotiations. 
It will be the largest trade event ever held in and hosted by the 
United States. 

In any major undertaking, the first steps are often critical ones. 
They define the shape of the endeavor. They give direction to the 
task at hand. This will be especially so in Seattle as the 134 coun- 
tries initiate a new effort to develop rules that will govern the 
course of trade in the next millennium. As host of the ministerial, 
the United States will have an opportunity, indeed a responsibility, 
to place its mark on the new round of trade negotiations. It is of 
the utmost importance, therefore, that the administration, in con- 
sultation with Congress, clearly identify its goals for the new round 
and state those goals definitively in Seattle. 

I know our witnesses today will describe a range of issues that 
they consider to be priorities for the ministerial meeting and I look 



6 


forward to hearing those views. In the interest of helping to get the 
discussion going, let me suggest three areas that should be high on 
our negotiators “to do” list at the ministerial and throughout the 
next round. 

First, the administration should use the ministerial and other 
meetings to emphasize the importance of full compliance by Mem- 
bers with their WTO obligations. The mechanism for pursuit of 
that goal should continue to include the WTO’s trade policy review 
mechanism, TPRM. It should be bolstered by requiring govern- 
ments to set target dates for coming into compliance with par- 
ticular commitments and make nonconfidential versions of informa- 
tion collected during the TPRM process available to members in 
dispute settlement proceedings. 

Second, the United States should have as a principal goal in the 
next round the development of rules concerning transparency in 
policies and practices affecting foreign producers ability to get 
goods and services to customers. This should include rules and the 
publication of laws, regulations, rules and administrative and judi- 
cial decisions. Further, the United States should seek rules requir- 
ing defendant governments in dispute settlement proceedings to co- 
operate in the disclosure of evidence of government actions except 
where there is a clear threat to national security. 

Third, the ministerial and the next round of negotiations should 
be the occasion for recognizing — and many of you have heard me 
say this before — that trade policy is more than just about lowering 
tariffs and eliminating traditional nontariff barriers, as important 
as that is. As the world economy has become more integrated, and 
indeed it has, issues once considered to be beyond the scope of 
trade policy are now very much a part of trade dynamics. Those 
issues include the ways in which countries regulate or fail to regu- 
late their labor markets. 

Accordingly, the United States should, among other things, sup- 
port negotiating objectives that include the development of rules 
that ensure adherence to trade and labor standards. 

Next, support the establishment of a working group in the WTO 
on the impact of labor market standards on trade. 

And fourth, support development of ongoing institutional link- 
ages between the WTO and ILO on trade labor market issues. 

I would welcome comment on these suggestions during today’s 
hearings, and I look forward to hearing the proposals specifically 
coming from our witnesses. Thank you. 

Mr. Chairman, if you would excuse me for a few minutes. If they 
will call me in turn on the floor, I will be right back. 

[The opening statement of Mr. Ramstad follows:] 

Statement of Hon. Jim Ramstad, a Representative in Congress from the 

State of Minnesota 

Mr. Chairman, thank you for calling this important hearing today to discuss our 
negotiating objectives at the upcoming Seattle Ministerial Meeting. 

It is critical that we prepare an aggressive, strategic plan for achieving our objec- 
tives at the upcoming Ministerial. Seattle will host the largest trade event ever held 
in the U.S., and we must ensure that it is also the most successful for achieving 
greater trade liberalization for American workers, consumers, manufacturers, farm- 
ers and service providers. 

I want to pay special attention to market access for U.S. agriculture commodities 
and value-added foods. We all know the current problems that face farmers, but the 
truth is that American farmers have been disproportionately hit by foreign trade 



7 


barriers for many years — despite being the largest single positive contributor to the 
US trade balance! 

Agriculture is a difficult sector to address, but it is part of the “build-in” agenda 
and deserves significant attention. We must make sure not only that these discus- 
sions begin. We must also ensure they are substantive, aggressive and fruitful. 
American farmers deserve our best effort. 

We will never accomplish our goals if nations are allowed to cling to old, market- 
distorting, protection-driven programs and practices. Countries with the most bla- 
tant and arduous trade barriers for U.S. agriculture exports, such as the European 
Union, will fight any and all efforts to make real progress in knocking down these 
unfair, anti-trade practices. They will try to protect them and keep them in the 
“blue box.” This cannot be tolerated! 

We must also structure our approach at these meetings to set ourselves up for 
the greatest gains for agriculture as possible. I believe we should adhere to the Uru- 
guay Round framework, which provides for a comprehensive, formula-based negotia- 
tion without exceptions. We should pursue conclusion with a single undertaking en- 
compassing all sectors. 

Mr. Chairman, thanks again for calling this hearing. I look forward to hearing 
from our witnesses today about the necessary elements for launching a comprehen- 
sive, successful round of multilateral trade negotiations in Seattle. 


Chairman Crane. All right. Thank you, we will proceed in the 
order I presented you. 

Mr. Weller. 

STATEMENT OF HON. JERRY WELLER, A REPRESENTATIVE IN 
CONGRESS FROM THE STATE OF ILLINOIS 

Mr. Weller. Thank you, Mr. Chairman. Thank you for the op- 
portunity to testify today. I would like to reintroduce to the Trade 
Subcommittee an issue that I brought before the Full Committee 
during the markup of the Financial Freedom Act of 1999. This 
issue involves the loss of 20,000 American film industry jobs from 
runaway film production. I want to raise this issue to urge that our 
domestic film industry be given a seat at the table at the WTO 
talks in Seattle to address the cultural content issue and its rela- 
tionship to runaway film production. 

The problem with runaway film production is a growing national 
issue which directly impacts thousands of American workers from 
New York to Florida, Washington to California, and Illinois to 
Texas. During the Committee discussion on the Financial Freedom 
Act, I offered an amendment which I later withdrew to introduce 
a wage-based tax credit and creative financing tax incentives to 
counter loss of film production jobs to Canada. 

Remember the film “Coming to America”? Unfortunately, it 
seems that filmmaking jobs are now running from America. In fact, 
a one-time Presidential candidate once referred to that “giant suck- 
ing sound” of jobs heading south. Well, that giant sucking sound 
is really the sound of 20,000 film industry jobs heading north to 
Canada. 

A recent study commissioned by the Directors Guild of America 
and the Screen Actors Guild shows that in 1993 over $10 billion 
in economic activity was lost to runaway economic film and tele- 
vision production. This is more than five-fold since the beginning 
of this decade. In the last 4 years alone, Texas has shown a 31 per- 
cent decrease in direct production revenues, while my State of Illi- 



8 


nois is down nearly 20 percent. Nationally, this has resulted in a 
loss of 20,000 jobs. 

In looking at the small businesses and jobs lost by this phe- 
nomenon, we are not just talking about directors and actors; rath- 
er, we are talking about the small businesses that support the film 
industry and make America great. These include caterers, hotel 
and motel operators, restaurants and bars, rental equipment busi- 
nesses, electricians, set construction workers and many others in- 
volved in this vitally important and culturally indigenous economic 
activity. Over the years this industry has been a leading exporter 
and driver of small business job creation. 

Mr. Chairman, this is a constituent issue which we should take 
seriously. This is also a constituent issue for you and other Mem- 
bers of the Subcommittee. I come from a district which includes Jo- 
liet, Elwood and Calumet City, the home of Joliet Jake and Elwood 
Blues, which I often refer as the “Blues Brothers” district. Last 
year, my constituents and I were stunned when they decided to 
make the film “Blues Brothers 2000,” they chose to film it in To- 
ronto rather than Chicago. Even more embarrassing was the fact 
that the Canadian filmmakers were calling the Chicago Film Com- 
mission to ask them how to best portray Chicago. 

With my statement I have included the Directors Guild and 
Screen Actors Guild study explaining the reasons why the film in- 
dustry is moving out of the country, and they have concluded that 
one of the many reasons is the tax incentives offered in other coun- 
tries like Canada, Australia and the United Kingdom, which we do 
not have here in the United States. Canada alone offers Federal 
and provincial tax credits between 22 and 46 percent of labor costs. 
These incentives are enough to make any business consider relo- 
cating, particularly when savings from filming in Canada can mean 
a dollar savings overall. 

The United States shouldn’t be put in a competitive disadvantage 
by tax incentives offered abroad. Rather we need to level the 
playingfield for the small businesses impacted by the runaway pro- 
duction and create jobs in America, for Americans. 

Related to this is an issue of Canadian cultural content policy. 
The Canadian government has given certain “cultural industries” 
special treatment. This policy has been implemented in large part 
by Canadian legislation as well as some foreign trade issues such 
as tariffs, taxes, foreign investment restrictions and content re- 
quirements that discriminate against U.S. cultural industries. Can- 
ada has consistently protected its cultural industries. 

This has been discussed and negotiated in the past. I believe that 
it must be addressed in Seattle with the backdrop of the issue of 
runaway film production. We have a situation in which thousands 
of U.S. jobs are being lured to Canada and other countries through 
favorable tax treatment, while at the same time cultural policies 
established by the Canadians and others discriminate against U.S. 
interests thereby creating a double hit to industries like our domes- 
tic film production. 

Mr. Chairman, even if the problem of runaway production had 
not become so great, the Canadian insistence on maintaining cul- 
tural content rules and regulations ought to be put on the table at 
the Seattle WTO talks. However, simple fairness requires response 



9 


by the United States to the increasing efforts by Canada to attract 
production away from the United States. So long as these efforts 
continue, the U.S. must address the Canadian cultural content 
rules. Canada cannot unilaterally decide to invite in our produc- 
tions jobs, but close the door on American domestic productions. 

Mr. Chairman, with the problem of runaway film production in 
mind, I ask that the issue of cultural content be placed on the table 
and addressed at the WTO talks in Seattle. Let’s be honest about 
this issue of runaway production. It is all about jobs. The average 
film industry worker earns $26,000 a year. This Congress has 
given great attention, and the right kind of attention, to the loss 
of 10,000 steel industry jobs over the past year. The film industry 
has lost over 20,000 jobs in the past year, and most of those jobs 
have emigrated north. It is time to address this problem and save 
U.S. jobs. 

Mr. Chairman, thank you for the opportunity to testify. I look 
forward to addressing any questions you may have. 

[The prepared statement follows:] 

Statement of the Hon. Jerry Weller, a Representative in Congress from the 

State of Illinois 

Mr. Chairman, 

Thank you for this opportunity to testify here today. I want to reintroduce to the 
Subcommittee an issue that I brought before the full Committee during the markup 
of the Financial Freedom Act of 1999. The issue is the loss of 20,000 American film 
industry jobs from runaway film production. I want to raise this issue to urge that 
our domestic film industry be given a seat at the table at the WTO talks in Seattle 
to address the cultural content issue and its relationship to runaway film produc- 
tion. 

The problem with runaway film production is a growing National issue which di- 
rectly impacts thousands of working Americans from New York to Florida; Wash- 
ington to California, Illinois to Texas. During the committee discussion on the Fi- 
nancial Freedom Act, I offered an amendment to introduce a wage based teix credit 
and creative financing tax incentives to counter the loss of film production jobs to 
Canada. 

Remember the film “Coming to America?” Unfortunately, its seems that film mak- 
ing jobs are now running from America. In fact, a one time Presidential candidate 
once referred to that giant sucking sound of jobs heading south — well that giant 
sucking sound is really the sound of 20,000 film jobs heading north to Canada. 

A recent study commissioned by the Director’s Guild of America and the Screen 
Actors Guild shows that in 1998 over $10 billion was lost to runaway economic film 
and television production. This is more than fivefold since the beginning of the dec- 
ade. In the last four years, Texas has shown a 31% decrease in direct production 
revenues, while my state Illinois is down nearly 20%. This has resulted in a loss 
of 20,000 jobs nationally. 

In looking at the small businesses and jobs lost by this phenomena, we are not 
just talking about directors and actors, rather we are talking about the small busi- 
nesses that support the film industry and make America great. This includes: cater- 
ers, hotel and motel operators, restaurants and bars, rental equipment businesses, 
electricians, set construction workers and many others involved in this vitally im- 
portant and culturally indigenous economic activity. Over the years, this industry 
has been a leading exporter and driver of small business job creation. 

Mr. Chairman this is a constituent issue which we should take seriously. This is 
a constituent issue for you too. I come from a district which includes Joliet, Elwood 
and Calumet City, the home of Joliet Jake and Elwood Blues, which I often refer 
to as the “Blues Brothers” district. Last year, my constituents and I were stunned 
when they decided to make the film “Blues Brothers 2000,” they choose to film it 
in Toronto rather than Chicago. Embarrassing was the fact that the Canadian 
filmmakers were calling the Chicago film commission to ask them how to best por- 
tray Chicago. 

With my statement, I have included the Directors Guild and Screen Actors Guild 
study explaining the reasons why the film industry is moving out of the country, 
and they have concluded that one of the main reasons is the teix incentives offered 



10 


in other countries like Canada, Australia and the U.K. which we do not have in the 
United States. Canada alone offers federal and provincial tax credits of between 
22% and 46% of labor costs. Those incentives are enough to make any business relo- 
cate. Particularly when savings from filming in Canada can mean a dollar savings 
overall. 

The United States should not be put at a competitive disadvantage by tax incen- 
tives offered abroad. Rather we need to level the playing field for the small busi- 
nesses impacted by runaway production and create jobs in America, for Americans. 

Related to this there is an issue of Canadian cultural content policy. The Cana- 
dian Government has given certain “cultural industries” special treatment. This pol- 
icy has been implemented in large part through Canadian legislation, as well as 
some foreign trade through tarifft, taxes, foreign investment restrictions and con- 
tent requirements that discriminate against U.S. cultural industries. Canada has 
consistently protected its cultural industries. 

This has been discussed and negotiated in the past. I believe that it must be ad- 
dressed in Seattle with the backdrop of the issue of runaway film production. We 
have a situation in which thousands of U.S. jobs are being lured to Canada and 
other countries through favorable teix treatment. While at the same time, cultural 
policies established by the Canadians and others discriminate against U.S. interests 
thereby creating a double hit to industries like domestic film production. 

Mr. Chairman, with the problem of runaway film production in mind, I ask that 
the issue of cultural content be placed on the table and addressed at the WTO talks 
in Seattle. Lets be honest about this issue of runaway production — its all about jobs. 
The average film industry worker earns $26,000 a year. This Congress has given 
great attention to the loss of 10,000 steel industry jobs over the past year. The film 
industry has lost 20,000 jobs and most of those jobs have emigrated north. It is time 
to address the problem and save U.S. jobs. 

Thank you Mr. Chairman. 


Chairman Crane. Thank you. 

Mr. Becerra. Wait. One thing before you start, Xavier. Try and 
keep your oral testimony to 5 minutes or less and all written state- 
ments will be made a part of the permanent record. 

STATEMENT OF HON. XAVIER BECERRA, A REPRESENTATIVE 
IN CONGRESS FROM THE STATE OF CALIFORNIA 

Mr. Becerra. Thank you, Mr. Chairman, and thank you to the 
Members of the Subcommittee, my fellow Subcommittee Members. 
Let me also begin by thanking my colleague, Mr. Weller, for having 
raised this issue of runaway productions as we start to develop and 
negotiate objectives for the upcoming World Trade Organization 
ministerial in Seattle. 

This issue may not have quite the direct connection that you 
might think in terms of the ministerial that we are about to em- 
bark upon in Seattle, but it certainly does relate to trade. Jobs are 
leaving communities across the Nation and production companies 
are choosing more and more to film outside not just of California, 
but outside of this country. Whether it is New York, North Caro- 
lina, Illinois, Washington State, Texas, Oregon, Maryland, Michi- 
gan, Wisconsin, all of these States along with California and others 
have been able to attract substantial production in the past. But 
unfortunately we are seeing more and more that these sites are 
being abandoned for places abroad. 

Mr. Weller mentioned that already we can talk about the 20,000 
jobs that have been lost, some $10.3 billion in economic loss to the 
United States in 1998 alone as a result of these fleeing productions. 

Now, we are not talking about the movie stars who make the 
million dollar salaries. We are talking about the ordinary working 



11 


people who build sets, provide lighting, cater food, operate hotels, 
and work in other capacities directly or indirectly in support of pro- 
duction of movies and television programs. The average film indus- 
try worker makes about $26,000 a year. 

Although a number of factors have caused productions to leave 
the United States, it is clear that government tax credits by other 
countries do have an impact. In Canada, since 1996, we have seen 
that nation offer to those production companies that come into 
their country 11 percent tax credits for labor costs and production 
costs. When you add up what the provincial governments also pro- 
vide you have somewhere between 22 percent to 46 percent savings 
of their labor expenditures for production companies going into 
Canada. There are other things they do as well. They provide duty 
free import of stage props, special effects equipment, other things 
that give these production companies a rather large break. 

Now, I raise this issue today because, as Mr. Weller has said, 
there is a disconnect, perhaps a little, between what the U.S. is ac- 
cepting in terms of Canadian insistence upon its cultural content 
laws while at the same time it is aggressively targeting U.S. jobs. 
For instance, only 40 percent of films aired on Canadian television 
can be produced in other countries. The Disney Channel and HBO 
are not allowed to have their own channels in Canada due to laws 
designed to protect Canadian competitors. 

At the same time, it is not uncommon for Canadian government 
officials to fly to Los Angeles, New York, and other U.S. production 
centers to attend events and to meet directly with film and tele- 
vision producers to advertise their incentive structure. For exam- 
ple, representatives of Revenue Canada — that is the Canadian 
IRS — attended a recent “Location 99” show in Los Angeles in order 
to promote Canadian incentives. 

I know the Office of U.S. Trade Representative will be testifying 
today and we are looking forward to addressing this issue with her 
a little further and we encourage Ambassador Barshefsky to try to 
limit this content exception. We know that she has tried in the past 
to try to eliminate it and we appreciate that. 

In 1996, the motion picture and television industry made $27.5 
billion in contributions simply to the State of California’s economy. 
If you add up the rest of the other 49 States you will find that the 
impact of this industry is tremendous. Canada is now the second 
largest exporter of television programming, following the United 
States. In 1998, Toronto became the third busiest production center 
in the world after Los Angeles and New York. And Vancouver now 
ranks fourth. 

If we do not engage on this issue, we will find that we have irre- 
versibly and irretrievably lost jobs in this country because we have 
failed to act in a timely manner. We certainly don’t want to have 
to constantly go to the floor of the House to do what we did yester- 
day to try to support the steel industry. 

I would hope that we would move quickly. While we may not be 
dealing directly with this issue through the ministerial in Seattle, 
it is a good time to talk about cultural content and other factors 
that do in the end cost U.S. jobs. 

Mr. Chairman, I thank you and the Members of this Sub- 
committee for the attention. 



12 


[The prepared statement follows:] 

Statement of the Hon. Xavier Beeerra, a Representative in Congress from 
the State of California 

Let me begin by thanking Chairman Crane, Ranking Democrat Levin, and my fel- 
low Subcommittee Members for affording me the opportunity to testify here this 
morning. I want to also commend my colleague Mr. Weller, for raising the issue of 
runaway productions as we start to develop our negotiating objectives for the up- 
coming World Trade Organization Ministerial in Seattle. 

Jobs are leaving communities across the nation as production companies choose 
to film abroad rather than filming in California, New York, North Carolina, Illinois, 
Washington state, Texas, Oregon, Maryland, Michigan, or Wisconsin, as they had 
in the past. In 1998, the U.S. suffered a $10.3 billion economic loss because of pro- 
ductions moving to other countries. Last year runaway productions accounted for 
the loss of 20,000 U.S. jobs. 

It is important to note that job loss resulting from runaway productions affects 
ordinary working people who build sets, provide lighting, cater food, operate hotels, 
wait tables in restaurants and bars, and work in other capacities that directly and 
indirectly support the production of movies and television programs. The average 
film industry worker makes about $26,000 a year. 

Although a number of factors have caused productions to leave, it is clear that 
government tax credits in other countries have played an integral role in the exodus 
of U.S. production companies. Countries like Canada recognize the benefits that 
U.S. movie and television production companies can bring to local economies. Since 
1996 Canada has offered federal rebates that equal 11% of spending for all Cana- 
dian labor involved in a production. Many provincial governments supplement these 
incentives, creating a total savings of 22% to 46% on Canadian labor expenditures. 
Moreover, as of January 1998, wardrobe, stage props, special effects equipment, and 
photographic equipment, of U.S. origin, used in the production of feature films, t.v. 
movies, or t.v. series are imported duty-free. 

I raise this issue today because there is a disconnect between the U.S. accepting 
Canada’s insistence upon its cultural content laws while at the same time it aggres- 
sively targets U.S. jobs. For instance, only 40% of films aired on Canadian television 
can be produced in other countries. The Disney Channel and HBO are not allowed 
to have their own channels in Canada due to laws designed to protect Canadian 
competitors. At the same time, it is not uncommon for Canadian government offi- 
cials and film commission representatives to fly to Los Angeles, New York City, or 
other U.S. production centers to attend events or meet directly with film and tele- 
vision producers to advertise their incentive structure. For example, representatives 
of Revenue Canada (the Canadian IRS) attended a recent “Location 99” show in Los 
Angeles in order to promote Canadian incentives. 

The Office of the U.S. Trade Representative will be testifying in the next panel 
and I look forward to further developing the discussion on cultural content laws at 
that time. Three years ago the Trade Representative attempted to persuade Canada 
to drop cultural content restrictions, but unfortunately did not succeed. I encourage 
Ms. Barshefsky to redouble her efforts in this endeavor. In the past, the issue of 
cultural exemptions was more narrowly focused on whether a clear violation of free 
trade should be granted an exception. I think that the answer was “NO” then, and 
I think it is “NO” today. 

However, the unfairness of the exception is even more dramatic today. The recent 
study commissioned by the Directors Guild of America and Screen Actors Guild 
demonstrates how the runaway productions problem has escalated since the last 
round of trade talks. Consequently, the U.S. must fight harder than ever to elimi- 
nate the cultural content restriction and open up the Canadian markets to all pro- 
ductions. 

In 1996, the motion picture and television industry made a $27.5 billion contribu- 
tion to California’s economy — $14.2 billion in economic activity was generated in Los 
Angeles alone. The industry is integral to sustaining our economic prosperity not 
only due to jobs created by the entertainment industry but also because it spurs 
growth in related sectors such as the fashion and apparel industry, furniture manu- 
facturing, multi-media industry, and tourism. 

Canada is now the second-largest exporter of television programming, following 
the U.S. In 1998, Toronto became the third busiest production center in the world, 
after Los Angeles and New York, with Vancouver ranking fourth. If we do not en- 
gage on this issue, we will find that we have irretrievably lost U.S. jobs because 
we failed to act in a timely manner. 



13 


Chairman Crane. Thank you. Mr. Regula. 

STATEMENT OF HON. RALPH REGULA, A REPRESENTATIVE IN 
CONGRESS FROM THE STATE OF OHIO 

Mr. Regula. Thank you, Mr. Chairman. And I will summarize 
my remarks. I think there is a lot of synergy between what is hap- 
pening on the floor today and this hearing, because we will hear 
a lot of speeches during the debate that we have a surplus, the 
economy is strong, and therefore we should give some of the money 
back to the taxpayers. That strong economy is predicated on both 
free and fair trade. And I think you might call this a quality of life 
hearing as much as a trade hearing, because if we are to have a 
strong economy prospectively and generate all of those surpluses 
we are hearing about out in the future, it is going to have to de- 
pend on a strong economy with jobs, with an opportunity to trade. 
And obviously a free flow of trade internationally is a very strong 
bulwark against the reduction in the economy. 

I just noticed in the paper today that South America generally 
has had some diminution in their economy overall, and that will 
affect us, as we found out with Asia when the Asian economy got 
sick and we got the flu in a backhanded way. 

So I commend you for what you are doing. But let me say also 
that we put a lot of effort into the Uruguay round. I was involved 
as cochairman of the Steel Caucus in getting protection of our anti- 
dumping laws, and the antidumping laws go to the question of fair- 
ness as well as the freedom in our trade relationships. 

I am concerned that there is a group in the WTO that wants to 
reopen the question of antidumping rules and thereby weaken the 
U.S. trade laws. I commend Ambassador Barshefsky for ensuring 
that the WTO working group on the Interaction between Trade and 
Competition Policy focuses its attention on significant, well-defined 
international competition policy and not include trade remedy in- 
struments. 

I would just have one simple message as they look at the WTO 
rules: leave the dumping rules alone. If anything, strengthen them, 
but do not tamper with them and do not respond to some countries 
that want greater access to our country. We had a debate last night 
on the steel issue and obviously we heard that over and over again 
that there have been predatory practices that tend to circumvent 
our antidumping laws. 

We do have an enormously open marketplace, and I think we are 
a model for the rest of the world, but as part of this we need pro- 
tection against unfair trade practices. I certainly advocate WTO 
consistent reforms to the trade laws, including reforming the injury 
standard for section 201 cases to the injury standard provided in 
WTO’s safeguards agreement. The U.S. currently has a higher in- 
jury standard than is required by WTO rules. This change would 
allow industry and labor to use section 201 more effectively. 

We constantly hear the statement that the industry and labor 
should use the laws that we have rather than seek additional pro- 
tection that perhaps goes in excess of our current law. I have to 
smile, I see President William McKinley’s picture up here, who was 



14 


a former Chairman of Ways and Means, and he built his first run 
as a Member of this body on the protective tariff and that was the 
keystone of his first campaign. And yet if you read the speech in 
Buffalo after he had been inaugurated for a second term and he 
said we are in a world trade situation and we have to open mar- 
kets and we have to trade with the world. So he really did a sub- 
stantial reversal on the issue of trade. 

Those statements he made in Buffalo are certainly very relevant 
today and I think you have an enormous challenge as a Sub- 
committee to give recommendations to our negotiators in Seattle to 
ensure that our industry and our Nation is in a free trade environ- 
ment, but also a fair trade environment. And I thank you for the 
opportunity to be here. 

[The prepared statement of Mr. Regula follows:] 

Statement of the Hon. Ralph Regula, a Representative in Congress from the 

State of Ohio 

Mr. Chairman and Members of the Trade Subcommittee, thank you for the oppor- 
tunity to present testimony regarding the U.S. negotiating objectives for the WTO 
Seattle Ministerial Meeting. As you are well aware, the Seattle Ministerial will con- 
vene this November in order to launch and set the negotiating parameters for a new 
“round” of multilateral trade negotiations. 

U.S. Trade Representative Charlene Barshefsky testified earlier this year before 
the Commerce, Justice, State Appropriations Subcommittee that the agenda for 
these meetings should include such issues as broad reductions in tariffs, the elimi- 
nation of export subsidies and further reductions in trade-distorting domestic sup- 
ports linked to production. 1 further understand that these trade talks will focus 
more directly on reshaping WTO rules on agriculture, services and intellectual prop- 
erty. The question remains, what other issues will be added to the list of items sub- 
ject to negotiation. 

While I support market opening efforts, I would like to stress that maintaining 
free trade depends on maintaining fair trade. In this regard, I believe that it is im- 
perative that the United States hold firm against reopening the WTO’s antidumping 
rules. 

As a veteran of the Uruguay Round negotiations, I remind everyone that the cur- 
rent WTO antidumping rules were agreed to only with great difficulty. I personally 
participated in many meetings and worked closely with industry, labor and adminis- 
tration officials to ensure that U.S. trade laws were not adversely impacted or sig- 
nificantly weakened during the Uruguay Round. 

I am concerned that there continues to be a group of countries that seek to reopen 
the WTO antidumping rules and call for a weakening of the U.S. trade laws. Most 
recently, there were efforts in the WTO Working Group on the Interaction between 
Trade and Competition Policy to weaken our trade laws. I commend the U.S. Trade 
Representative for ensuring that this working group focuses its attention on signifi- 
cant, well-define international competition policy issues that do not include trade 
remedy instruments. 

Effective antidumping rules are a cornerstone of an open market policy. The 
United States now has one of the most open markets in the global marketplace. But, 
there must be some protection against unfair trading practices if we are going to 
make our markets available to all our trading partners. We still face many trading 
partners that have not reciprocated by fully opening their markets. So it is only fair 
that our domestic industries have some protection against dumped and subsidized 
imports. 

A case in point is the recent steel import surge that occurred in 1998, with im- 
ports still continuing at higher than average rates in 1999. The U.S. industry and 
labor have sought redress through our unfair trade laws and as these cases move 
through the process, we are now seeing some relief provided to slow the rate of 
dumped and subsidized steel imports. But, even under expedited procedures, the 
process has been long and costly for domestic steel manufacturers and American 
steel workers. For this reason alone, it is imperative that our U.S. trade laws are 
not weakened. 

I would further advocate several WTO-consistent reforms to the U.S. trade laws, 
including conforming the injury standard for Section 201 cases to the injury stand- 
ard provided in the WTO Safeguards Agreement. The U.S. currently has a higher 



15 


injury standard. This would allow industry and labor to use Section 201 more effec- 
tively to counter import surges. I also support the provisions of H.R. 1505 intro- 
duced by Rep. Phil English which would strengthen our trade laws in a manner con- 
sistent with our international obligations. 

I would like to close by saying that there have been no major problems with WTO 
Members’ implementation of the antidumping agreement, and certainly non that 
justify reopening the agreement itself. While continued monitoring of how the Uru- 
guay Round rules are being implemented makes sense, that is very different from 
re-negotiating those rules. The United States should be very clear about this distinc- 
tion, and should be careful not to agree to anything under the “implementation” ru- 
bric that will in practice lead to reopening the antidumping agreements. 

Thank you again for the opportunity to testify before the Subcommittee regarding 
the importance of maintaining strong and effective U.S. trade laws as a way to en- 
sure that there is truly a “level pla3dng field” as we work to open more markets 
throughout the world. 


Chairman Crane. We thank you, and harking back to the 
McKinley example, McKinley pushed through the most protec- 
tionist tariff measure in the history of this country in 1890 and 
that brought on what was called the “Panic of ’93,” Grover Cleve- 
land took the blame for that and he was not responsible for that 
stupid piece of legislation and he began immediately dismantling 
it and made the observation at the time that when you put those 
walls around the country, you are inflicting the greatest injury on 
that man who earns his daily bread with the sweat of his brow. 

Now, our good friends on the other side of the aisle are ones who 
have that great free-trade tradition throughout their history until 
post World War II. We hope they will start coming back to the fold. 
And Republicans learned the hard way as McKinley did. But we 
are lifting the blinders too. 

Mr. Neal. Mr. Chairman, I would hope that you would point out 
what party Mr. McKinley belonged to. 

Chairman Crane. Republican. And Cleveland was a good free- 
trade Democrat. 

My colleague Dan Miller is our next witness. 

STATEMENT OF HON. DAN MILLER, A REPRESENTATIVE IN 
CONGRESS FROM THE STATE OF FLORIDA 

Mr. Miller. Thank you, Mr. Chairman. One of our major goals 
as we approach the negotiations in Seattle is to open up markets 
and bring down barriers to our products, especially for our farmers 
around the world. But when we approach this, we need to have 
clean hands. If we are asking other countries to open their prod- 
ucts, we cannot be protective of our products and we have one that 
stands out like a sore thumb and that is the sugar program, be- 
cause that is a very heavily protected program in this country. 

It is designed where the Federal Government forces the price of 
sugar to be about four times the world price. The price of sugar in 
the United States is about 23 cents a pound. The world price ac- 
cording to the paper this morning is about 6 cents a pound. This 
is very much an anti-free-market program that is due to expire in 
2002, so we need to make sure that it is not allowed to continue 
certainly past that date. 

Let me briefly describe the program. The program is designed, 
since we cannot grow enough sugar in the United States we must 



16 


import some sugar, that we control the total supply and force the 
price up. And what the Federal Government does is through a non- 
recourse loan program, and the loan program is in the 18- to 22- 
cent range, depending on the type of sugar, and we cannot lose any 
money on this nonrecourse loan, they have to maintain a price 
above 22 cents. That is the reason the price stays at 23 cents a 
pound approximately. And we have a quota system with coun- 
tries — this is a very strange program — so we have 40 countries in 
the world that are allowed to sell sugar to the United States. Now, 
10 of these countries cannot each grow enough sugar for their own 
consumption. And it is amazing, big countries that grow a large 
amount of sugar such as Australia, they sell it to everybody in the 
world for 6 cents a pound but not to the United States. They sell 
it to us for 23 cents a pound. It makes no economic sense. 

And then we have 10 countries that cannot even grow enough for 
their own consumption and they are buying it from countries like 
Australia and then selling it to us and making this profit. It is a 
strange program and does not belong in our free enterprise system 
in this country. It is very much anticonsumer. The GAO study 
shows the cost of this program as at least $1 billion a year. It kills 
jobs in this country. Let me describe some of the jobs that are hurt. 

First of all, refineries. Sugar refineries cannot get enough sugar 
and they have been closing for the past decade because of this pro- 
gram. We have lost over 10 sugar refineries. These are good high 
paying union jobs, by the way. But we have the users of sugar. One 
is Bob’s Candies down in Georgia. It is a candy cane company 
where sugar is a major cost of its production. It has to pay the 23 
cents for its sugar, but its competitors in Canada only pay 6 cents 
for sugar. It cannot compete. It is having to shift its jobs overseas 
to be able to be competitive in the sugar cane business. This is a 
company that has been around for three generations. 

In yesterday’s Hill Magazine, there was a case in Michigan, Con- 
gressman Dingell’s district, of a company that is a $35 million a 
year company with 60 employees and it was importing some type 
of sugar syrup from Canada and the trade people say you are im- 
porting that because all you want is the sugar out of it. Well, all 
they are going to do is shut down that company and move those 
jobs from Detroit. 

This is very much an antijob program and anti-free-market pro- 
gram. It is an embarrassment really to us I think because we have 
had articles in Time Magazine and Reader’s Digest and the “Fleec- 
ing of America” on television explaining how we allow this to con- 
tinue. And if we are going to be people that believe in the free mar- 
ket system, we need to make sure that we say, hey, we are willing 
to allow all of our products to compete in the world market, and 
if we are going to expect Canada and Japan and China and other 
ones to come to the table and to negotiate in the same way with 
clean hands. 

So I say we need to have clean hands when we negotiate and we 
need to make sure that as this program expires in 2002 we don’t 
allow it to be reauthorized, because it is going to be difficult for our 
negotiators to be in there seeking a fair deal. And I would like to 
submit my official statement for the record and also a recent GAO 



17 


report that was just released this week analyzing the entire sugar 
program, and I thank you, Mr. Chairman. 

[The prepared statement of Mr. Miller follows:] 

Statement of the Hon. Dan Miller, a Representative in Congress from the 

State of Florida 

Chairman Crane, Ranking Member Levin, Distinguished Colleagues: 

Thank you for allowing me to testify about the important WTO ministerial meet- 
ing that will take place in Seattle later this year. 1 feel this is “fish or cut bait” 
time for the United States in seeking free and fair trade and to truly help our farm- 
ers and industry. 1 applaud this committee for holding this important hearing. 

Much of the financial hardship being experienced by our nation’s farmers is due 
to contraction of overseas markets for U.S. agricultural exports. What 1 want to 
stress to you today is the importance of having the United States Trade Representa- 
tive enter into the Seattle Round with “clean hands” in order to change that trouble- 
some trend. Ostensibly, Seattle is an opportunity to knock down barriers to trades 
and allow American industry a greater opportunity to export into other countries. 
This would result in greater incomes for U.S. farmers and businesses. The sugar 
program undermines our trade objectives and is colliding with efforts to help small 
farmers. 

The Seattle meeting is the best opportunity to be pro-U.S. farmer if we have the 
courage to knock down barriers. If every country is allowed to exempt politically 
well connected commodities from trade negotiations by taking them off the table be- 
fore they enter the room, then there can be no progress on free trade. For example, 
if the United States continues to knock out foreign sugar, then Canada can justify 
kicking out United States dairy and Europe can knock out US oilseed crops, and 
so on. Seattle must not allow this protectionist and wasteful cycle to continue. Quite 
simply, our negotiators must decide whether it is more important to preserve an 
outdated sugar program than to open markets for competitive American farm prod- 
ucts. Remember the US sugar program hurts more people than it helps. 

I would like to concentrate my remarks on how the domestic sugar program hurts 
our economy and hampers the competitiveness of many important American indus- 
tries. As you know, I have been very active in reforming the sugar program and I 
have introduced H.R. 1850 to phase out this program. 

Through price supports, the sugar program keeps the price of sugar in the United 
States artificially high. By tightly limiting the amount of sugar that may be im- 
ported into the United States, and subsidizing the operations of sugar producers 
through federal loans, the sugar program forces the price of domestic sugar to be 
at least twice as high as the price of sugar on the world market. 

While this is a sweet deal for sugar producers, it leaves a sour taste in the mouths 
of tcixpayers, consumers, American workers, and the environment. The GAO esti- 
mates that the sugar program costs consumers more than $1 billion every year in 
higher prices for food and table sugar. Jobs for American workers have been elimi- 
nated because of sugar refineries that have been forced to shut down and because 
of companies relocating overseas where sugar is cheaper. A more recent GAO study 
shows that domestic users incur a cost of $200 million annually for each penny in 
excess of the estimated price needed to avoid forfeitures. This does not even address 
the higher costs forced on users by the inflated prices of the program. 

The environment is damaged by sugar production in Florida. The subsidized pro- 
duction of sugar in Florida results in phosphorous-laden run-off flowing into the Ev- 
erglades, which contributes to the destruction of this fragile ecosystem. Amazingly, 
the federal government continues to subsidize sugar producers, even as Congress 
participates in a multi-billion dollar project to repair the damage done to the Ever- 
glades. Recently, the Army Corps of Engineers announced a long-awaited and ambi- 
tious plan to save the Everglades. 

For the past several Congresses I have introduced amendments to the Agriculture 
Appropriations Bill as well as stand alone legislation to reform the federal sugar 
program. This year I introduced H.R. 1850 with Congressman George Miller (D- 
CA). H.R. 1850 has the support of national taxpayer, consumer, and environmental 
advocacy groups. It has also been co-sponsored by Trade subcommittee Chairman 
Crane and subcommittee members Clay Shaw and Jim Ramstad. 

As my time is limited let me concentrate on several troublesome aspects of this 
program. Specifically, how the sugar program costs consumers over $1 billion dollars 
a year and benefits a select few sugar producers. Moreover, I will discuss how the 
sugar program kills U.S. sugar refinery and manufacturing jobs. 



18 


Costs to Taxpayers 

In 1993, the GAO has estimated that the present sugar program costs over $1 
billion per year in higher prices for table sugar and food. This cost has been con- 
firmed by Public Voice for Food and Health Policy. I believe this cost is probably 
higher today due to the disparity of world sugar prices and the US sugar program 
price. Not only do higher costs affect the prices paid at the cash register, they affect 
the taxpayer in the costs of government. Higher food costs mean higher entitlement 
spending under Food Stamps or other government programs such as school lunches 
and Meals on Wheels. It is a regressive form of corporate welfare benefitting a select 
few producers while making every consumer pay more at the cash register to justify 
this program. 

The U.S. Department of Commerce has noted that the “effect of the sugar pro- 
gram is similar to a regressive sales teix, which hits lower-income families harder 
than upper income families.” If you support regressive teixation, then I guess you 
have no problem with the U.S. sugar program. If you do not favor taxing the poor 
more heavily, however, you should favor changes in our sugar policies. 

Finally, the flight of businesses out of the country due to the high domestic cost 
of sugar results in lost revenue at the local, state and federal levels. Although no 
calculation of this lost revenue is currently available, it is significant in light of the 
many thousands of displaced workers. 

Benefit to a Select Few 

The GAO reported that 42% of the sugar programs benefits went to just 1 % of 
the sugar producers in 1991 and 33 big sugar barons each received more than $1 
million in extra revenues under the program. One producer even received $65 mil- 
lion in one year. 

Time Magazine did a story last November on the Fanjul family that outlined how 
the U.S. sugar subsidy has helped propel this family into the ranks of the multi- 
millionaires. I commend it to your reading as it fairly captures how the sugar pro- 
gram helps a few well connected folks while sacrificing the good of the rest of the 
country. 

I must emphasize this because you will hear; “Don’t kick farmers when they are 
down” or “the family farm needs support, not a kick in the teeth.” Great sound bites, 
but totally inappropriate with the sugar program. Sugar plantations are not family 
farms in the normal sense of that phrase. In 1995, the USDA compared the non- 
cash economic benefits that accrue to farmers of various commodities thanks to gov- 
ernment action. Wheat gets $23 per acre in government benefits, cotton farmers $87 
per acre. Sugar gets $472 per acre. Moreover this artificially high price per acre of 
sugar acreage complicates efforts to restore the Everglades by creating an economic 
incentive to utilize more Everglades for sugar farming. And all this benefit goes to 
a select few sugar barons. 

So when our trade representatives defend the US sugar program in global trade 
talks, they are defending the Fanjuls, the politically well connected, the select few, 
but definitely not the average family farmer hurt by the contraction of overseas 
markets. The USTR must not protect a few folks who are profiting from an over- 
priced subsidy program at the expense of cattlemen, corn growers and other impor- 
tant American commodities. Nor must the USTR protect the select few sugar barons 
at the expense of the many important domestic users of sugar such as candy makers 
and refineries which are important US industries. 

Jobs Lost 

The two main American industries adversely affected by our sugar program are 
sugar refineries and manufacturers of products that utilize sugar. 

Often, sugar refineries are unable to find a consistent and adequate supply of 
sugar to operate year round. The variations create economic inefficiencies and waste 
which result in these facilities being unable to stay in business. Moreover, refineries 
process sugar and require sugar cane and beet to operate. Needless to say, buying 
this raw material in the United States is overly expensive when compared to the 
world price. Why would a conmany buy large quantities of sugar cane at $ .22 per 
pound when they can buy at $.045 per pound in a foreign nation and take advan- 
tage of other favorable economic factors such as labor costs and government regula- 
tion? Defending the status quo will only send more jobs overseas. 

Accordingly, it is not hard to see why our sugar system is sending refinery jobs 
overseas. As recently as 1981 there were 23 sugar refineries in the United States. 
Today, there are only 11 refineries. Over 3,500 jobs have been lost by closures at 
the refineries due to a sugar program that only benefits a select few. 



19 


Similarly, manufacturers of products that rely on sugar are greatly affected by the 
present sugar subsidy. Ask any businessman would they rather buy sugar at 22 
cents per pound or at 4.5 cents per pound and they would all agree they would like 
the cheaper sugar. Even with a duty that raises the cost to over 19 cents per pound 
when sugar is brought into America, businessmen know that 19 cents is cheaper 
than 22 cents. And businessmen know that they need to pack up and leave the 
United States if they want to get that cheaper sugar. Also, the incentive remains 
to move operations overseas if the company is pursuing an aggressive export strat- 
egy. 

I think the best example of the present sugar program driving jobs out of America 
is the story of Bob’s Candies. Bob’s Candies was the largest producer of candy canes 
in America. Candy canes are a very cyclical industry and are made to be a low cost 
candy. However, the U.S. sugar program throws large roadblocks in the way of do- 
mestic candy makers. Accordingly, Bob’s Candies moved to Jamaica where sugar is 
much cheaper. The president of Bob’s Candies recently told Reader’s Digest that the 
company would save more than $2 million a year in raw materials if the sugar pro- 
gram was scrapped. This savings would enable the company to keep jobs in America 
and lower retail prices. Unfortunately, it just makes good business sense to go over- 
seas to get cheaper sugar to make candy. How many Bob’s Candy Canes will this 
Committee tolerate? 

Also, the Committee should note that the cost of our sugar program was a main 
reason why Coke and other soda companies do not use sugar in soft drinks. Sugar 
got too expensive. The program priced sugar out of the lucrative soft drink industry. 
Instead, soft drinks now use high fructose corn syrup (HFCS) which does not have 
the high costs and economic inefficiencies of the sugar program. 

Finally, I ask this committee to keep in mind the fact the sugar industry is not 
large in comparison to other aspects of the economy. According to USDA data there 
are between 40,000 and 70,000 jobs directly related to the sugar program. This is 
a small number compared to the 520,000 jobs in the food processing industry or the 
thousands of lost Everglades related tourist jobs. Congress and our trade represent- 
atives must not blindly protect a small special interest sugar program at the ex- 
pense of the greater good. 

The U.S. sugar protection program and its implementation causes odd distortions 
in the world wide import and export of sugar that are utterly inconsistent with free 
trade and free markets. According to the GAO study on the sugar program released 
just this week, the United States allocates import levels to some 40 trading partner 
countries in a manner that bears little relationship to the realities of supply and 
demand. 

For example, Brazil and the Philippines are both “allowed” by the USTR to import 
approximately the same tonnage of sugar under this bizarre quota system despite 
the fact that Brazil produces 21 times more sugar (5,215,000 tons) than the Phil- 
ippines (249,000 tons). Furthermore, 10 of the 40 countries who are given sugar 
quota allocations by the United States to import sugar here are actually net import- 
ers of sugar themselves. 11 of the 40 countries who receive an allocation have aver- 
age worldwide export levels that are less than their U.S. allocation level. 

Can such a system really be consistent with our free trade message? How would 
the United States react if one of our trading partners gave American corn farmers 
a quota level that was the same as that of Honduras? Would we take seriously an- 
other country’s admonitions about free trade if that country allocated imports of 
American beef at the same low level as those of Liberia? These are the questions 
that naturally flow from examination of our sugar program and I hope that our 
trade representatives at Seattle do not feel compelled to expend valuable credibility 
defending such an archaic and economically inefficient system that does not advance 
the overall interests of the United States. 

Put another way, the Seattle meeting must be the forum for the United States 
to effectuate the greater good. Many more American jobs and consumers need 
cheaper sugar and many more non-sugar farmers need our trade policy to be freed 
from the millstone of our domestic sugar subsidy. If the Seattle Ministerial is suc- 
cessful, the USTR can save American jobs in refining and manufacturing of any- 
thing that uses sugar. Also, the USTR will save the teixpayers billions of dollars. 

Again, I thank you Mr. Chairman for not only allowing me to testify but for your 
continued leadership on the efforts to end the sugar subsidy. It is in America’s best 
interests to get rid of foreign and domestic subsidies like our sugar program and 
I am appreciate all the efforts this subcommittee will undertake to accomplish this 
goal. 



20 


Chairman Crane. And without objection, so ordered with regard 
to your request. 

Mr. Houghton. 

Mr. Houghton. Thank you, Mr. Chairman. I appreciate the tes- 
timony. It is enlightening. I just have two or three questions I 
would like to ask Mr. Weller. The Canadians are obviously con- 
cerned about their cultural heritage and feel sometimes over- 
whelmed about their proximity to the United States, so just to try 
to sort of depersonalize this thing and get into the guts I would like 
to ask you two or three questions. 

First of all, what is really the practical impact here of the Cana- 
dian cultural content rules? And second, does the United States 
prohibit broadcast distribution or sale of Canadian-produced pro- 
gramming? And third, really do the Canadian cultural context 
rules have a real impact on employment of actors and directors and 
things like that? You might want to turn to those questions. 

Mr. Weller. Sure, Mr. Houghton, and thank you for your ques- 
tions and I also want to thank you on behalf of all of us interested 
in the question of runaway production for your commitment to 
work with us and later this year conduct a hearing on the issue 
of runaway production with the Oversight Subcommittee. I thank 
you for your commitment to do that. 

When it comes to the impact of the Canadian cultural content 
rules, it could have a profound impact on U.S. producers of tele- 
vision and motion pictures. There is a recent Law Review article 
by publishers of Syracuse University Law Review. They noted that 
certain cable channels like the Disney Channel are prohibited as 
a result of cultural content rules enforced by the Canadian govern- 
ment. And the irony of this is that similar prohibitions have caused 
and forced many Canadian citizens who are interested in obtaining 
these channels to buy U.S. satellite dishes on the black market. 

And, moreover, Canada mandates that private stations must 
have a 60-percent Canadian content measured over the broadcast 
day and 50 percent over the evening hours, while the Canadian 
government-owned CBC must have 60-percent Canadian content at 
all times. It does have a very big impact on American film produc- 
tion as well as American television production. 

You had also asked whether or not the United States prohibits 
broadcast distribution or sale of Canadian-produced programs. Not 
at all. The United States of course has a free market for Canadian 
products. And not only do we permit their programming, but many 
Canadian television shows and television stars have been very suc- 
cessful. Let me list some of those. SCTV, Due South, and Road to 
Avalon, and performers like Rick Moranis, Dan Ackroyd, Jim 
Carrey, and Michael J. Fox have all been very successful in the 
United States precisely because we give our consumers the freedom 
and the right to choose the type of program that they want to 
watch and not have that enforced by the government. 

You had also asked if the Canadian cultural content rules have 
an impact on the employment of U.S. actors, directors and tech- 
nical crews and others, and they do have an impact. Canada has 
adopted a point system that must be satisfied if a production is to 



21 


achieve the cultural content designation. Under the point system 
six of 10 creative production positions must he performed by Cana- 
dians. In addition 75 percent of all expenditures have to be made 
to Canadians. Thus U.S. citizens are cut out of the action. They are 
cut out of the broad number of jobs in Canadian cultural content 
production. And of course Canada has those opportunities for the 
promises of wage rebates and tax incentives as well. 

That is really one of the key reasons why it is so important that 
the issue of runaway production as well as cultural content be ad- 
dressed at the Seattle talks because it is having a real impact on 
an industry which is so important to the United States. Domestic 
film production is indigenous to our Nation. We have lost 20,000 
jobs. Most of those have emigrated north as a result of not only the 
Canadian content rules but the vast array of incentives, particu- 
larly tax incentives, that the Canadians are offering to American 
film producers to relocate and go north. 

So thank you for those questions. They are important and basic 
questions. 

Mr. Houghton. Thank you. Mr. Chairman, do I have just a 
minute more? I would like to ask Mr. Regula a question on 301. 
We are very concerned about 301 and also section 201. Clearly 
there are people that want to change that. Do you really hear the 
drums beating pretty loudly on that focusing on the ministerial in 
Seattle? 

Mr. Regula. Well, I think this Subcommittee should address 
those issues. I believe Mr. English has a bill that tries to reflect 
the experience we have had and proposes some trade law changes. 
To summarize what I think will be the situation in Seattle is an 
effort by countries to change WTO rules to make it easier to dump 
into our markets. I think in anticipation of that, we want to hold 
firm because our laws are working. If anything, strengthen them 
and streamline them to make it easier for demostic companies to 
bring actions. 

Ch^airman Crane. Mr. Neal. 

Mr. Neal. Mr. Weller, is it your belief that what the Canadians 
are doing is legal under existing trade law? 

Mr. Weller. We certainly believe there is some legitimate ques- 
tions that should be raised. We believe that they are using their 
cultural content rules to put the United States at a great disadvan- 
tage, particularly when it comes to film production. When you 
think about it, the average film production has about $25 million 
in economic impact. The average film industry worker makes 
$26,000 a year. We have lost 20,000 jobs, most of which have gone 
north because of Canadian tax incentives as well as the Canadian 
content rules. And when cable channels that you and I have the 
opportunity just through freedom of choice if we have cable at 
home, Disney, HBO, are prohibited as a result of cultural content, 
something is wrong and we should raise that issue and it should 
be put on the table. 

Mr. Neal. The U.S. film industry still remain a net exporter. Is 
it your understanding that they would be reluctant to bring a case? 

Mr. Weller. I can’t speak specifically for the U.S. film industry. 
I will let them speak for themselves. But our belief is that there 
are abuses that do need to be raised. We have seen a growth in 



22 


film production, but if you see how those jobs have grown, more 
and more of them are shifting to Canada. And we have seen in my 
city of Chicago, and I imagine if you look at the economic impact 
in the Boston area you have probably seen an impact as well, in 
Chicago we have seen a 20-percent reduction in the amount of pro- 
duction activity as a result of runaway production. In Texas, which 
has heen extremely hard hit, almost a third of their film production 
has been lost and runaway production has clearly been identified. 

And I would urge you to take a look at the monitor study that 
was done by the Directors Guild and the Screen Actors Guild, 
which we would he happy to provide you a copy of, which numbers 
the impacts in the communities such as Boston and Chicago. It is 
not just a Hollywood issue. 

Mr. Neal. Thank you, Mr. Weller. Thank you, Mr. Chairman. 

Chairman Crane. Next, Mr. Foley. 

Mr. Foley. Thank you, Mr. Chairman. Mr. Chairman, I want to 
thank Congressman Weller and Congressman Becerra for focusing 
on the runaway production issue. In the House Entertainment 
Task Force we are going to be doing, we hope, extensive study and 
have extensive dialog on the issue and I think you raise some very, 
very important points and I would like to ask you both, if you can 
in the brief time, to comment on some of the incentives that Can- 
ada provides as a tax motivation to bring films to Canada. First 
Mr. Weller and then Mr. Becerra. 

Mr. Weller. Sure. And Mr. Foley, of course I want to thank you 
for your leadership and involvement on this issue. Folks a lot of 
times when they think of the film industry and movies and tele- 
vision production they always think of Hollywood and this is not 
just a Hollywood issue. This is a constituent issue for me in Illinois 
and I know it is for you in Florida and for Mr. Becerra in Cali- 
fornia, but it impacts dozens of urban areas, rural areas as well as 
many, many States have found domestic film production to be a job 
generator and a job creator. 

In fact, in Illinois we had 55 productions that were either fully 
or partially filmed in Illinois. So we are one of those States that 
recognizes the importance of the film industry. 

However, we have a challenge, and the Canadian government, 
both the Federal and provincial governments, have been very, very 
aggressive in offering financial incentives to television as well as 
film production. And these include wage credits, as well as other 
forms of tax subsidies which could reimburse in some provinces up 
to 40 percent of the cost of the production. Now from the stand- 
point of any businessperson if they could find a way to reduce costs 
by 40 percent, they are going to consider that other area to do busi- 
ness. 

So my belief is that we really need to work in a bipartisan way 
to find ways of reducing the cost of production in the United States 
and keep these jobs here. As I noted in my testimony in this Con- 
gress in the last 9 years, and I represent an area with significant 
amount of steel production so it is an issue I am very concerned 
about, but we have lost 10,000 steel jobs in the past year and this 
Congress has given a tremendous amount of attention to that 
issue. But unfortunately the administration nor Congress have 
paid little attention to the issue that needs to be on the radar 



23 


screen and that is the issue of runaway production. When you have 
lost 20,000 jobs, that is serious. That is twice as many jobs as have 
been lost in the steel industry alone. 

So clearly the tax incentives as well as the weaker Canadian dol- 
lar have contributed to the loss of jobs that have headed north. 

Mr. Becerra. Good question, and thank you again for the role 
you are playing in this as well. Certainly Florida should be very 
concerned because it is one of the States that does have major pro- 
duction facilities and sites. More specifically, because I think Mr. 
Weller did a very good job of answering the questions, if the gov- 
ernment in Canada provides an 11 percent rebate — they don’t call 
it a tax credit, they call it a rebate — on all production costs that 
are related to labor. So someone who works there, you pay that 
person a salary, you get to reduce that in your costs by 11 percent. 
The Federal Government in Canada will give you back 11 percent. 
On top of that the provincial governments provide a number of in- 
centives, rebates, tax credits. So you can get anywhere from 22 up 
to 46 percent of a rebate, tax credit, whatever you would like to call 
it, an incentive to do business. 

On top of that, Canada is now offering to production companies 
from abroad from other countries like the United States duty-free 
import of its stage facilities, of its production equipment, its photo- 
graphic equipment, special effects equipment. All of this now gets 
to come in without any charge for importation. So they are saving 
quite a bit of money when they go to a place like Canada. 

We need to do something to make sure we have a level 
playingfield. 

Mr. Foley. Thank you very much and I thank you both for your 
hard work on this and hopefully, and I know Mr. Weller has asked 
Mr. Houghton to potentially have some hearings in depth in a vari- 
ety of locations and I look forward to working with both of you. If 
I may, Mr. Miller, I cannot escape without a conversation on sugar. 
I didn’t expect one today, but I might as well jump in. 

The price of sugar has remained stable without question in the 
last 9 years. There has been no increase in the wholesale price of 
sugar. Why then can you explain the price of the finished product 
going up so dramatically? There doesn’t seem to be a nexus be- 
tween the cost of sugar and the end retail price. 

Mr. Miller. Basic economics 101 said that — you are talking 
about if we went to the world market 6 cents a pound you would 
not see a price change in products. But that is only one component 
of the price and I think you would see price changes in things that 
have high content of sugar. There is no justification for us to be 
paying 23 cents a pound for sugar in the United States and 6 cents 
a pound in Canada. How can we compete? It is the same way we 
can’t compete when they have incentives for products like that. 

But the most important thing is to have the ability to have clean 
hands. We are protecting one product and when we go there and 
try to open up markets for dairy products and what have you, it 
is not a fair field. 

Mr. Foley. My time has expired, but I would love to continue the 
dialog. I am sure we will have a chance on the floor. 

Chairman Crane. Gentlemen, we appreciate your participation 
today, and that concludes this panel. 



24 


We now welcome our next panel, our witness, Hon. Susan G. 
Esserman, Deputy U.S. Trade Representative and you may proceed 
when ready. And we would also ask you to try and keep oral testi- 
mony in the neighborhood of 5 minutes and all written testimony 
will be made a part of the permanent record. Proceed when ready. 

STATEMENT OF HON. SUSAN ESSERMAN, DEPUTY UNITED 
STATES TRADE REPRESENTATIVE 

Ms. Esserman. Thank you, Mr. Chairman, Members of the Sub- 
committee. I very much appreciate this opportunity to testify on 
the important issue of the U.S. agenda at the World Trade Organi- 
zation. 

In 4 months. Ambassador Barshefsky will open the WTO’s third 
ministerial conference in Seattle. This will be the largest trade 
event ever held in America, bringing trade ministers, business ex- 
ecutives and citizen groups to Seattle from all over the world. It 
will highlight to the world our economic achievements and focus 
public attention as never before on the role that trade plays in the 
longest peacetime expansion in American history. 

We also expect at the ministerial to launch a new round of inter- 
national trade negotiations. This round builds upon 50 years of bi- 
partisan American commitment to a fair, open, and free inter- 
national economy capped by the conclusion of the Uruguay round, 
which created the WTO in 1994. In the 5 years since, the WTO has 
fully proven its value to the United States and the world. For ex- 
ample, Americans have taken greater advantage of a more open 
world economy by increasing exports by over $200 billion, contrib- 
uting to the economic growth we have enjoyed and helping us gain 
high-skill, high-wage jobs. 

The WTO’s strong dispute mechanism has strengthened our abil- 
ity to ensure compliance with trade agreements and has resulted 
in tangible gains for American companies and workers and the 
WTO has been vital to our ability to address the financial crisis as 
its rules-based system has helped to prevent the outbreak of a cycle 
of protection and retaliation which would have hurt the United 
States as the world’s largest exporter as much as any other country 
in the world. 

As we look to a new round, we see immense promise to go fur- 
ther and as President Clinton has stated, to create a world trading 
system attuned to both the pace and scope of the new world econ- 
omy and to the enduring values which give direction and meaning 
to our lives. 

We are now consulting with this Subcommittee, Members of Con- 
gress, interested Americans in business, agriculture, NGOs and 
others, about the objectives for the round. 

I am going to very briefly outline our core objectives. Our view 
is that the core of the negotiating agenda should address market 
access concerns, including tariffs, nontariff measures, subsidies and 
other measures, with benchmarks to ensure that the negotiations 
stay on schedule. These broad-based markets access negotiations 
would lead to immense new business and job opportunities for our 
workers, companies and farmers. 

The agenda and its results must unquestionably be broad enough 
to create a political consensus by addressing the market access pri- 



25 


orities of all members. It also must be manageable enough to be 
completed within 3 years and avoid raising major compliance prob- 
lems afterward. 

This market access agenda would have four substantial compo- 
nents: Of course, at the core of the negotiating agenda is agri- 
culture and here we seek elimination of export subsidies, reduction 
of trade-reducing supports, lower tariffs and better administration 
of tariff rates, quotas, disciplines on state trading enterprises, im- 
proved market access for least developed countries, and ensuring 
that trade in agricultural biotechnology products is based on trans- 
parent, predictable and timely processes. 

The second core element is service. Our objective here would in- 
clude liberalizing a broad range of services, ensuring that the WTO 
rules anticipate the development of new technologies, and devel- 
oping disciplines to ensure transparency and good governance on 
regulation of services. 

Third, industrial goods where broad market access negotiation 
would buildupon the accelerated tariff liberalization initiative. 
Here we seek to reduce existing tariff disparities, use applied rates 
as the basis of negotiation, address nontarifif and other measures 
affecting market access and, as in agriculture, improved market ac- 
cess for the least developed WTO members. 

Fourth, we will pursue trade facilitation negotiations which 
would remove customs impediments so that exports expeditiously 
reach customers in foreign markets. We intend to expand on this 
base by pursuing work in several areas. For example, a special pri- 
ority will be creating a trade environment that promotes the 
unimpeded development of electronic commerce. 

Second, we will seek to ensure that trade liberalization promotes 
and supports sustainable development. This will include identifying 
and pursuing areas such as the elimination of tariffs on environ- 
mental technologies and the elimination of fishery subsidies that 
both distort trade and harm the environment. 

We will use the WTO’s Trade and Environment Committee to ex- 
amine the environmental implications of negotiations as they pro- 
ceed. We will seek institutional reforms to open up the WTO and 
we have made a commitment to conduct an environmental review 
of the round. 

Third, the relationship between trade and labor will be a high 
priority. As President Clinton has said, we must put a human face 
on the global economy, giving working people everywhere a stake 
in its success, equipping them all to reap its rewards, and provide 
for their families the basic conditions of a just society. 

The WTO has a role to play in this area, including ensuring re- 
spect for core labor standards. Our goal here is to ensure that the 
WTO reaps the broadest benefits for the largest possible number 
of working people in all nations. To this end, and consistent with 
the Uruguay round Agreements Act, we have called for the estab- 
lishment of a work program to address trade issues relating to 
labor standards. 

Finally, the past 5 years revealed areas in which institutional re- 
forms would further strengthen the WTO and its base of public 
support. A special focus here will be ensuring that the WTO more 



26 


fully reflects the basic values of transparency, accessibility and re- 
sponsiveness to citizens. 

Before ending my remarks, Mr. Chairman, let me very briefly re- 
view the areas we are seeking to conclude by Seattle which we will 
help to build momentum for a successful round. We expect the ac- 
cession to the WTO of a number of countries. We are especially 
pleased by the progress we have made with the transition econo- 
mies as their integration into the world economy will help their re- 
form and democratization policies succeed. 

We expect to conclude the ongoing review of the WTO’s dispute 
settlement mechanism with a focus here on ensuring timely compli- 
ance with panel decisions and greater transparency. We will seek 
to extend the current standstill on application of tariffs to elec- 
tronic transmissions. We will also seek to conclude a multilateral 
agreement on transparency in government procurement promoting 
new opportunities around the world and reducing the potential for 
bribery and corruption. And finally we will be working toward con- 
sensus on the accelerated tariff liberalization initiative and on an 
expansion of the information technology agreement. 

Mr. Chairman, these are ambitious goals in the short term for 
the round but they are goals fully in the tradition of the 50 years 
of bipartisan commitment to American leadership in world trade. 
The task before us now is to bring this work forward into the next 
century. 

Thank you very much. 

[The prepared statement follows:] 

Statement of the Hon. Susan Esserman, Deputy United States Trade 

Representative 

American Goals in the Trading System 

Mr. Chairman, Congressman Levin, Members of the Subcommittee: 

Thank you very much for inviting me to testify today on the U.S. agenda at the 
World Trade Organization. 

This November 30th, the United States will host the World Trade Organization’s 
Ministerial Conference in Seattle. The Ministerial will be the largest trade event 
ever held in the United States, bringing heads of government, trade ministers, busi- 
ness leaders and non-governmental associations from around the world and focusing 
public attention as never before on the role trade plays in American prosperity. Am- 
bassador Barshefsky will have the honor of chairing this meeting. 

At the Ministerial, we also expect to launch a new Round of international trade 
negotiations, which President Clinton called for in his State of the Union Address. 
This has the potential to create significant new opportunities for American workers, 
businesses, and farm and ranch families. We also seek to improve the WTO itself, 
to make the organization more transparent, responsive, and accessible to citizens. 
And we can ensure that its work supports and complements efforts to protect the 
environment, improve the lives of workers, reduce hunger and improve health. 

We are now building the necessary consensus internationally for an agenda with 
broad support in the U.S. and worldwide. And with the Ministerial just four months 
away, the Trade Subcommittee has chosen an ideal time to review the United 
States’ stake in the trading system and our goals for its future. As we prepare for 
the Ministerial and the Round, we look forward to continuing to work closely with 
the Subcommittee and with other Members of Congress to develop the strategy and 
objectives that will yield the best results for our country and for the world. Today 
I would like to review for you our stake in the world trading system; the consulta- 
tions we have undertaken in preparation for the Ministerial; and the results we 
hope to achieve at Seattle and in the Round. 



27 


U.S. Stake in the Trading System 

The United States is now the world’s largest exporter and importer, carrying on 
over $2 trillion worth of goods and services trade each year. The jobs of millions 
of American workers, the incomes of farm families, and the prospects for many of 
America’s businesses depend on open and stable markets worldwide. 

This is the foundation of the leading role we have taken in the development of 
the trading system for over fifty years, since the creation of the General Agreement 
on Tariffs and Trade in 1948. Throughout these decades, Republican and Demo- 
cratic Administrations, working in partnership with Congress, have concluded eight 
negotiating Rounds. Each successive Round, culminating in the Uruguay Round 
which created the WTO, has opened markets for Americans, and helped to advance 
basic principles of rule of law, transparency and fair play in the world economy. 

Since the Uruguay Round’s conclusion in 1994, Americans have taken full advan- 
tage of these benefits. 

• With the opening of world markets, American exports have risen by well over 
$200 billion, contributing to the rapid economic growth we have enjoyed, and the 
continuation of the longest peacetime expansion in America’s history. This has also 
helped us to gain high-skill, high-wage jobs, reverse a 20-year period of decline in 
wages, and in fact increase wages by 6% in real terms. 

• The strong dispute settlement system created by the Uruguay Round has al- 
lowed us to improve significantly our enforcement of the trading rules. Since the 
creation of the WTO, we have filed more cases than any other member, and have 
a very strong record of favorable settling or prevailing in the cases we have filed. 

• And the trading system has been vital to our ability to address the financial 
crisis. The commitments WTO members have made have helped to ensure that, with 
40% of the world in recession, and six major economies contracting by 6% or more, 
we at least so far have seen no broad reversion to protectionism. This is a tribute 
to the strength of the trading system we have helped to build. It has prevented 
enormous economic damage to our national economy, our farmers and our working 
people; ensured that affected countries have the markets essential to recovery; and 
helped avert the political tensions that can arise when economic crisis leads to trade 
conflicts. 


The Work Ahead 

Despite these achievements, however, much work remains ahead. The trading sys- 
tem can be made more effective in removing trade barriers, more transparent and 
accessible in its own workings, and broadened to include nations now outside. With 
the Ministerial and Round, we will address issues such as the following: 

• World trade barriers remain high in many areas, including in several crucially 
important sectors in which U.S. producers are the world leaders. Agriculture and 
services are crucially important examples; in industrial goods, we often face signifi- 
cant trade barriers, subsidies and other practices overseas which a new Round can 
address. 

• Our leadership in the scientific and technological revolution creates new chal- 
lenges and opportunities for the trading system to address. Electronic commerce and 
the growth of the Internet as a medium for trade is an especially important exam- 
ple. 

• Membership in the WTO can make a major contribution to reform in the tran- 
sition economies — that is, the nations in Europe and Asia moving away from com- 
munist systems. As successful reformers and WTO members such as Poland, the 
Czech Republic and Hungary have observed, WTO membership on commercially 
meaningful grounds helps to integrate transition economies into world trade and 
make the reforms necessary to create market-based economies, thus promoting long- 
term growth and liberalization. 

• The results of future WTO agreements can contribute to the world’s efforts to 
reduce hunger, protect the environment, improve the lives of workers, promote 
health and nutrition, support financial stability, fight bribery and corruption, and 
promote transparency and good governance worldwide. 

The balance of my testimony today will review our WTO agenda in four areas: 
ensuring implementation of the Members’ present commitments; developing the 
agenda for a successful Ministerial and a new Round; encouraging the accession, on 
commercially meaningful grounds, of new members; and the specific steps that can 
advance the broader vision and 3 deld immediate results for the U.S. and world 
economies. 



28 


I. Compliance With Agreements 

First of all, we are working to ensure full compliance with existing agreements. 
We have met our commitments on time and in full, and we expect our trading part- 
ners to do the same. 

No matter what the new agenda will he, a fundamental component of our trade 
policy will remain the effective implementation of existing agreements. We have 
made this point clear to our partners in Geneva, and in this regard, 1999 is an espe- 
cially important year. By January 1, 2000, WTO Members must meet Uruguay 
Round commitments under the Agreements on Intellectual Property, TRIMs, Sub- 
sidies, and Customs Valuation. In succeeding years, final liberalization commit- 
ments under the Agreement on Clothing and Textiles as well as certain aspects of 
the TRIPS and Subsidies Agreement will phase in. Likewise, Uruguay Round tariff 
commitments will soon be realized in full. 

These commitments represent the balance of concessions which allowed comple- 
tion of the Uruguay Round and have helped realize its benefits since then. The 
credibility of any future negotiations depends on their implementation. To ensure 
implementation, we use all methods available. This includes use of dispute settle- 
ment and U.S. trade laws when necessary, hut also a commitment to the technical 
assistance programs that allow some of the developing countries to gain the capacity 
to meet complex demands in areas such as services, agriculture and intellectual 
property. In our recent submissions to the WTO General Council, therefore, we have 
proposed methods to address legitimate problems with compliance now and in the 
context of new negotiations, and ways to make technical assistance programs more 
effective in promoting full integration into the world economy. 

We also are encouraging those WTO Members which have not ratified the Basic 
Telecommunications and Financial Services Agreements to do so as soon as possible. 
This will not only open markets to U.S. Providers, but ensure that all Members can 
benefit from their commitments and that they can win the benefits of competition, 
transparency and technological progress these Agreements offer. 

II. Developing an Agenda for the New Round 

As we address compliance issues, we are also developing the agenda for the new 
negotiating Round President Clinton called for in the State of the Union Address, 
to be launched at the Ministerial in Seattle. 

Our work in this regard has its foundation in a series of domestic consultations 
with a wide range of interested groups and individuals: Congress, business groups, 
agriculture, labor organizations, academics, environmental groups, state and local 
government, and others. This has included many individual meetings; Trade Policy 
Staff Committee hearings in Atlanta, Detroit, Los Angeles, Chicago, as well as 
Washington DC, to gather ideas on priorities and objectives; and a series of Listen- 
ing Sessions jointly with the Department of Agriculture on the agricultural agenda, 
traveling to Indiana, Florida, Minnesota, Tennessee, Texas, California, Washington, 
Nebraska, Delaware, Vermont, Iowa and Montana to hear directly from farmers, 
ranchers and others. We have also, of course, met frequently with our trading part- 
ners at the WTO in Geneva, and in meetings such as the US-Africa Ministerial, 
FTAA conferences, the US-EU Summit, the Quad meeting in Tokyo and others to 
review their priorities, exchange views and develop consensus. 

Given our consultations and conversations to date, we believe the agenda should 
take the following shape: 

• The core of the agenda should address market access concerns including agri- 
culture, services and industrial goods, with benchmarks to ensure that the negotia- 
tions remain on schedule for completion within three years. 

• The agenda should also pay special attention to areas in which trade policy can 
encourage technological progress, notably in electronic commerce. 

• This agenda should support and complement efforts to improve worldwide en- 
vironmental protection, and ensure that trade policy yields the maximum benefit for 
the broadest range of workers. 

• This negotiating agenda should be complemented and balanced by a work-pro- 
gram to address areas in which consensus does not yet exist for negotiations; and 
By a series of measures to reform the WTO, with a special focus on transparency 
and citizen access. 

We can decide on the precise structure for negotiations once consensus on the 
agenda is achieved. It is clear, however, that the agenda and final result must un- 
questionably be broad enough to create a political consensus by addressing the mar- 
ket access priorities of all Members. At the same time, we should ensure that it is 
manageable enough to complete within three years and avoid raising major compli- 
ance problems afterwards. 



29 


Specifically, our ideas would include the following: 

1. Market Access 

Market access negotiations, as the core of the negotiations, should cover the built- 
in agenda of agriculture and services, and also address non-agricultural goods. 

In agriculture, in liberalizing trade we have the potential to create broader oppor- 
tunities for American farm and ranch families, fight hunger and promote nutrition 
worldwide through ensuring the broadest possible supplies of food at market prices, 
and help to protect the land and water by guaranteeing the right to use modern 
science and reduce trade-distorting measures which increase pressure on land, 
water and habitat. To secure this opportunity, we would set the following objectives: 

• Completely eliminate, and prohibit for the future, all remaining export sub- 
sidies as defined in the Agreement on Agriculture. 

• Substantially reduce trade-distorting supports and strengthen rules that en- 
sure all production-related support is subject to discipline, while preserving criteria- 
based “green box” policies that support agriculture while minimizing distortion to 
trade; 

• Lower tariff rates and bind them, including but not limited to zero/zero initia- 
tives; 

• Improve administration of tariff-rate-quotas; 

• Strengthen disciplines on the operation of state trading enterprises; 

• Improve market access through a variety of means to the benefit of least-devel- 
oped Members by all other WTO Members; and 

• Address disciplines to ensure trade in agricultural biotechnology products is 
based on transparent, predictable and timely processes. 

In services, American industries are the most competitive in the world, as dem- 
onstrated by our $258 billion in services exports last year. The Uruguay Round has 
created an important set of rules, but in many cases, actual sector-by-sector market- 
opening commitments simply preserved the status quo. Effective market access and 
removal of restrictions will allow U.S. providers to export more efficiently, and help 
address many broader issues worldwide. Examples include improving the efficiency 
of infrastructure sectors including communications, power, transport and distribu- 
tion; improving environmental protection services; easing commerce in goods, thus 
creating new opportunities for manufacturers and agricultural producers; and help- 
ing to foster financial stability through competition and transparency in financial 
sectors. To realize these opportunities, objectives would include: 

• Liberalize restrictions in a broad range of services sectors; 

• Ensure that GATS rules anticipate the development of new technologies; 

• Prevent discrimination against particular modes of delivering services, such as 
electronic commerce or rights of establishment; and 

• Develop disciplines to ensure transparency and good governance in regulations 
of services. 

In industrial goods, further market-opening will help Americans promote high- 
wage, high-skill jobs and create economies of scale that allow U.S. firms to invest 
more in research and development and become more competitive. Here, broad mar- 
ket access negotiations in the next Round would build upon the Accelerated Tariff 
Liberalization initiative, which calls for the early liberalization of eight specific sec- 
tors and which we hope to complete by the time of the Ministerial, through objec- 
tives including: 

• Reduce existing tariff disparities; 

• Provide recognition to Members for bound tariff reductions made as part of re- 
cent autonomous liberalization measures, and for WTO measures. 

• Use of applied rates as the basis for negotiation, and incorporation of proce- 
dures to address non-tariff and other measures affecting market access; and 

• Improve market access for least developed WTO Members by all other Mem- 
bers, through a variety of means. 

2. Additional Issues 

Most delegations agree that negotiations should be completed within three years. 
Given this reality, and in order to find an appropriate balance of interests and a 
convergence of views, certain issues might be appropriate for a forward work-pro- 
gram that would help Members, including ourselves, more fully understand the im- 
plications of newer topics and build consensus for the future. In addition, several 
broader issues will inform our work on the core market access issues. Issues to ad- 
dress would include: 



30 


а. Electronic Commerce 

For example, one of the most exciting commercial developments of recent years 
has been the adaptation of new information and communications technologies, nota- 
bly the Internet, to trade. This has very important implications for reducing the cost 
of goods to consumers, improving the efficiency of companies, and for speeding 
growth in developing regions, as Internet access greatly reduces the obstacles entre- 
preneurs, artisans and small businesses face in finding customers and managing pa- 
perwork. 

It is critical that the WTO act now to ensure that artificial barriers do not delay 
or block the benefits of this new method of conducting trade. We have therefore pro- 
moted a broad electronic commerce agenda at the WTO and elsewhere, including a 
work-program to ensure technological neutrality in the development of WTO rules, 
and capacity-building efforts to ensure that developing countries have access to the 
Internet. We are encouraged that most WTO members agree that all e-commerce 
activities are covered by the traditional WTO disciplines of transparency, non-dis- 
crimination and no unnecessary obstacles to trade. As I will note later, our top im- 
mediate priority is to ensure that cyber-space remains duty-free — that is, that coun- 
tries do not apply tariffs to electronic transmissions. 

б. Sustainable Development and Committee on Trade and Environment 

In all these areas, we intend to take special care to ensure that trade liberaliza- 
tion promotes and supports sustainable development. In particular, we will pursue 
trade liberalization in a manner that is fully consistent with and supportive of this 
Administration’s strong commitment to protection of the environment. This means 
a number of things. 

First, it means that we must consider the environmental implications of the nego- 
tiations from start to finish. In this connection. President Clinton has committed to 
an environmental review of the likely consequences of the Round and we have called 
on other countries to do likewise. In the same vein, we have proposed using the 
WTO’s Trade and Environment Committee to discuss the environmental implica- 
tions of negotiations as they proceed. 

Second, it underscores the importance of institutional reforms to ensure that the 
public can see the WTO and its processes, notably dispute settlement, in action and 
contribute to its work. Stakeholders have an important role to play in helping to 
assess the environmental implications of the new round. 

Third, it means pursuing trade liberalization in a way that is supportive of high 
environmental standards. This means, among other things, that the WTO must con- 
tinue to recognize the right of Members to take science based measures to achieve 
those levels of health, safety and environmental protection that they deem appro- 
priate — even when such levels of protection are higher than those provided by inter- 
national standards. 

Fourth, it means that we have a responsibility for identifying and pursuing “win- 
win” opportunities where opening markets and reducing or eliminating subsidies 
hold promise for yielding direct environmental benefits. Examples we have identi- 
fied thus far include elimination of tariffs on environmental goods through the Ac- 
celerated Tariff Liberalization initiative; liberalization of trade in environmental 
services; elimination of fishery subsidies that contribute to overcapacity; and contin- 
ued liberalization in the agriculture sector. 

Fifth, it means that we will promote strengthened cooperation between the WTO 
and other international organizations dealing with environmental matters. In this 
connection, we are pleased that discussions are going on right now between the 
WTO and the United Nations Environment Program on increasing cooperation. 

We have tabled a number of proposals to advance these objectives. Also, we are 
carefully examining the proposals put forward by other countries on trade and envi- 
ronment. In addition, as we look at other proposals from other countries that are 
not trade and environment proposals per se, we will be considering how they relate 
to the environment. In all of this work, we welcome the input of this Committee 
and all stakeholders. 

c. Trade and Labor 

Likewise, the relationship between trade and labor is an especially important pri- 
ority. As President Clinton said to the ILO Conference in June: 

“We must put a human face on the global economy, giving working people every- 
where a stake in its success, equipping them all to reap its rewards, providing for 
their families the basic conditions of a just society.” 

Trade policy has a role to play in the realization of this vision, and development 
of the trading system must come together with efforts to ensure respect for core 



31 


labor standards, and our goal is to ensure that the WTO brings the broadest bene- 
fits for the largest possible number of working people in all nations. 

In the Declaration issued at the WTO’s First Ministerial Conference in Singapore, 
WTO members renewed their commitment to the observance of core labor stand- 
ards. This was the first time such a group of Trade Ministers had formally ad- 
dressed labor standards. While this was an important first step, we believe that 
more attention to the intersection of trade and core labor standards is warranted 
as governments and industries wrestle with the complex issues of globalization and 
adjustment, and that the WTO has a role to play in the process. We are continuing 
to consult with Congress and the labor community in the U.S., as well as with WTO 
members who share our interest, on contributions the WTO can make to the goal. 

In January, we submitted a proposal for the establishment of a work-program in 
the WTO to address trade issues relating to labor standards, and areas in which 
Members of the WTO would benefit from further information and analysis on this 
relationship and developments in the ILO. In addition, we will seek enhance institu- 
tional links between the ILO and the WTO through mutual observer status, to help 
facilitate collaboration on issues of concern to both organizations. We will consult 
with the Subcommittee on these matters in the months ahead. 

Work at the WTO on these issues is, of course, part of a broader effort centered 
on the International Labor Organization, which with the President’s leadership re- 
cently concluded a landmark Convention on the Elimination of the Worst Forms of 
Child Labor. This builds on a June 1998 Declaration on Fundamental Principles and 
Rights covering core labor standards as well as a follow-up mechanism. In support 
of this work, the President announced in his 1999 State of the Union address a Core 
Labor Standards and Social Safety Net Initiative, including a budget request for $25 
million for multilateral assistance to be provided through the ILO, to help countries 
provide basic labor protections and improve working conditions. We also, of course, 
make use of the labor policy tools in our trade statutes, notably the labor condition- 
ality under the Generalized System of Preferences, to promote respect for core labor 
standards. 

3. Institutional Reform 

The past five years of experience with the WTO have also revealed areas in which 
the institution can be further strengthened. We thus seek to ensure that the WTO 
more fully reflects the basic values of transparency, accessibility and responsiveness 
to citizens; ensure that its work and that of international organizations in related 
fields are mutually supportive and promotes as much as possible the larger vision 
of a more prosperous, sustainable and just world economy; and strengthen public 
support for the WTO. Our proposals here include: 

Institutional Reforms that can strengthen transparency, and build public support 
for the WTO by: 

• Improving means for stakeholder contacts with delegations and the WTO; and 

• Enhancing transparency in procedures to the meiximum extent possible. 

Capacity -building, to ensure that the WTO’s less advanced members can imple- 
ment commitments, use dispute settlement effectively and take meiximum advan- 
tage of market access opportunities. This plan is based on our close consultation 
with our partners in Geneva to ensure that technical assistance and capacity-build- 
ing programs meet their actual needs and practical experience. This is to our advan- 
tage, as it will help these countries grow and become better markets for U.S. goods 
and services. Specific areas here would include: 

• Improve cooperation, coordination and effectiveness among international orga- 
nizations in identifying and delivering technical assistance; 

• Build upon and expand the “Integrated Framework” concept adopted to help 
least developed countries implement commitments; 

• Ensure the most effective use of resources on technical assistance programs; 

• Strengthen capacity-building in regulatory and other infrastructure needs; and 

• Explore a development partner program for the least-developed nations. 

Trade Facilitation, which will ensure that U.S. small and medium-sized busi- 
nesses as well as less developed economies can take full advantage of the market- 
opening commitments created by the Round. Here, objectives would include: 

• Clarif 3 dng and strengthening the transparency requirements of WTO Agree- 
ments; and 

• Helping to improve customs procedures, so as to increase transparency and fa- 
cilitate more rapid release of goods, ensuring that our exports reach foreign markets 
more rapidly. 



32 


III. Toward the Ministerial 

In the months ahead, we will be working with our trading partners to develop 
consensus on the negotiating agenda (including issues of timing, and benchmarks 
to ensure that the negotiations begin and end promptly), preparing logistically for 
a successful meeting in Seattle, and continue to consult with the Subcommittee and 
Congress as a whole on specific negotiating objectives in each area. At the same 
time, we also hope to reach consensus on several initiatives which would both help 
build the foundation of a successful Round, and take advantage of existing opportu- 
nities to open markets and reform the WTO. They would include: 

1. Accessions 

First, the accession of new WTO Members, on commercially meaningful grounds, 
is a major endeavor and critical for the creation of a fair, open and prosperous world 
economy. 

Since 1995, seven new Members have joined: Bulgaria, Ecuador, Kyrgyzstan, Lat- 
via, Mongolia, Panama and Slovenia, with Estonia soon to follow. With 31 more ac- 
cession applicants, we look forward to further accessions on a similar basis in the 
months ahead. Georgia just completed its working party process and a number of 
others may soon follow, in advance of the Seattle meeting. Already this year, we 
have completed bilateral negotiations with Taiwan and made significant progress on 
the accessions of Albania, Armenia, China, Croatia, Jordan, Lithuania, Moldova and 
Oman. We have also held important and fruitful meetings with Russia, Saudi Ara- 
bia and Ukraine. 

Our hope is that a number of these applicants will have completed their acces- 
sions by November. Clearly, however, not all of the applicants will complete their 
accession processes by the Ministeriaf and the opening of the new Round. In these 
cases, as was the case in the Uruguay Round, we would work with Congress and 
our trading partners to develop an acceptable formula under which these economies 
could be involved in the new negotiations while moving ahead with accession. 

2. Dispute Settlement Review 

Second, to promote American rights and interests, and to ensure the credibility 
of the WTO as an institution, a dispute settlement system that helps to ensure com- 
pliance with WTO agreements, provides clarity in areas of dispute, and is open to 
public observers is of great importance. 

Our experience thus far with dispute settlement has been generally positive: we 
have used the system more than any other WTO member, with many successful re- 
sults. The European Union’s failure to implement panel results in two cases, how- 
ever, has been very troubling, and we hope to ensure that in the future, losing par- 
ties comply or face penalties in a more timely fashion. Likewise, we believe the sys- 
tem can be more responsive to citizen concerns in a number of ways. 

Thus, in the ongoing Dispute Settlement Review at the WTO, we are seeking 
greater transparency and ensuring timely implementation of panel findings. We are 
particularly interested in providing for earlier circulation of information on panel re- 
ports, making parties’ submissions to panels public, allowing for submission of ami- 
cus briefs and opening the hearings to observers from the public. Our hope is to con- 
clude this work by the Ministerial. 

3. Electronic Commerce 

As I noted earlier, we have begun a long-term work program in the WTO to en- 
sure the unimpeded development of electronic commerce. In the immediate future, 
our priority is to avoid the imposition of tariffs on electronic commerce. No WTO 
member now considers electronic transmissions as imports subject to customs du- 
ties — a policy affirmed when we led in securing in last May’s “standstill” on e-com- 
merce tariffs. We are working to secure consensus on extending this policy by the 
Ministerial, which would help us prevent the imposition of an enormous new burden 
on this new method of trade. 

4. Accelerated Tariff Liberalization and Information Technology Agreement 11 

Fourth, we hope to achieve agreements which expand market access opportunities 
in areas of interest to U.S. producers and to our trading partners by the time of 
the Ministerial. The two areas of special concentration include: 

• Accelerated Tariff Liberalization — Eliminating or harmonizing tariffs in chemi- 
cals; energy equipment; environmental goods; fish and fishery products; gems and 
jewelry; medical equipment and scientific instruments; toys; and forest products; 
and 



33 


• ITA II — An “Information Technology Agreement 11” adding new products (e.g. 
radar equipment, computer accessories, consumer electronics and printed circuit 
boards) to the sectors already covered by the first ITA. 

5. Collaboration with Other International Organizations 

Fifth, we are working toward making the WTO more able to collaborate with 
international institutions to support economic stability and stability through mutual 
observer status, joint research programs when appropriate, and other specific initia- 
tives. Such organizations would include the World Bank, the International Mone- 
tary Fund, the International Labor Organization, the UN Environmental Program, 
the UN Development Program, the OECD, UNCTAD, and others. 

6. Transparency 

Sixth, specific measures to improve transparency, both as an institutional matter 
within the WTO, and in governance worldwide. The two priorities for the months 
ahead include: 

• WTO — The WTO should ensure meiximum understanding and access to meet- 
ings and procedures, consistent with the government-to-government character of the 
institution. As I noted earlier, dispute settlement is a special focus for this work. 
Essential goals include such additional measures as more rapid publication of panel 
reports, and more rapid de-restriction of documents. 

• Transparency in Government Procurement — The WTO can also help to promote 
transparency and good governance worldwide. In this regard, an agreement on 
transparency in procurement would create more predictable and competitive bid- 
ding, which would reduce opportunities for bribery and corruption, and help ensure 
more effective allocation of resources. 

7. Recognizing Stakeholder Interests 

Seventh and finally, it is clear that the interest in the WTO and its work of civil 
society organizations (including businesses, labor organizations, agricultural pro- 
ducers, women’s organizations, environmental groups, academic associations and 
others) is growing. Likewise, delegations and WTO staff will benefit from hearing 
a broad range of opinions and views on the development of trade policy. We are thus 
working toward consensus on methods for such stakeholder organizations to observe 
meetings as appropriate, and share views as delegations develop policy. 

Conclusion 

In summary, Mr. Chairman, the United States in the months ahead has a re- 
markable opportunity. 

Our predecessors in ten Administrations and twenty-five Congresses have left us 
a legacy of bipartisan commitment and achievement in creating a fair and open 
world trading system. As a result of their work, American workers are more produc- 
tive, American companies more competitive and American families more prosperous 
than ever before. 

In the years ahead, we can do the same for the next generation, if we work to- 
gether to ensure that the WTO is adapted to address new areas of commere, per- 
sistent trade barriers, and the concerns of our citizens. As host and Chair of the 
Seattle Ministerial Conference, we have a keen responsibility to help create and 
bring to completion the agenda that will realize this vision. We look forward to 
working in partnership with the Members of this Committee to do so. 

Thank you very much. 


Chairman Crane. Thank you, Ms. Esserman. How does the ad- 
ministration foresee the issue of labor being addressed in the up- 
coming WTO ministerial? 

Ms. Esserman. Mr. Chairman, we are working on this issue in 
a number of ways, and we have been consulting broadly on the 
issue with the labor community, with your Subcommittee, and 
other Members of Congress. Let me outline how we see it to date, 
but I will tell you that we are still in the process of formulating 
our ideas here. 



34 


First, as I said, we think it is very important that the WTO en- 
sure the maximum benefits for the largest number of people, work- 
ing people in the world. And there are a number of things that we 
are thinking about to support that goal. First, we think it is impor- 
tant that the WTO have a better labor perspective and to that end 
we support International Labor Organization observership. 

Also, the United States on a routine basis raises, in all the re- 
views of individual countries — the reviews of their trade regimes — 
we raise to the attention of the WTO these countries’ compliance 
with core labor standards. 

Third, we have been working and trying to expand the base of 
countries that share our perspective on the importance of respect 
for core labor standards. 

And fourth, we have indicated to the WTO that we intend to pur- 
sue a work program on the relationship between trade and labor 
as called for in the Uruguay Round Agreements Act. 

Chairman Crane. There is strong support in the U.S. agriculture 
community for treating the negotiations as a single undertaking 
that encompasses all sectors and this group suggests that a com- 
prehensive set of concessions has to be on the table in order to 
achieve the reforms we are seeking in agriculture from our trading 
partners. Many U.S. industrial and service sectors on the other 
hand want to negotiate, in effect, “early harvests” on some issues. 
How does USTR propose to reconcile these two divergent ap- 
proaches to the overall structure of the negotiations and is there 
a way to assure both groups that their interests will not be com- 
promised? 

Ms. Esserman. Mr. Chairman, I do believe there is a way to en- 
sure both groups that their interests will not be compromised. Here 
is how we are approaching this issue. 

First, we have said repeatedly. Ambassador Barshefsky has said 
repeatedly, it is most important that as we shape the structure of 
these negotiations, we first decide appropriate subjects for negotia- 
tion. Once we decide the subjects for negotiation, then we will de- 
termine how all of these subject areas will be negotiated. 

In other words — let me just say, basically we envision that the 
core of the negotiations will be market access. And here what we 
would envision is that at the end, we would have a broad basis of 
areas for concessions so that there would be a sufficiently attrac- 
tive package for all of these groups. The way in which we believe 
we can fit the interests of both groups is that we are pursuing 
early results for the eight sectors involved in the accelerated tariff 
liberalization initiative and here we believe that the way to bridge 
the gap is that the ultimate final implementation of the results 
with respect to these eight sectors would be contingent on the com- 
pletion of an overall broad package at end of the round. 

Chairman Crane. It has come to my attention that U.S. busi- 
nesses, particularly accounting firms, are being handicapped by na- 
tional laws and procedures which restrict their ability to get the 
right people to the right place at the right time. I was pleased to 
see mention a movement of natural persons as an area ripe for ne- 
gotiation in your recently tabled services paper. Can you elaborate 
on our plans to proceed on this important issue in the upcoming 
round of negotiations? 



35 


Ms. Esserman. At this point, let me just say that that is a broad 
area for pursuit in the services negotiation. At this point I don’t 
have further details about it, but I would be happy to follow up 
with you on this issue. 

Chairman Crane. Thank you. And finally, if we are serious 
about reducing trade barriers we will have to acknowledge that it 
is a reciprocal proposition and we cannot start by taking whole in- 
dustries off the table. If we do, other countries will do likewise. 
And our opportunities to open foreign markets will be gone. Does 
the administration agree that our peak tariffs on agricultural prod- 
ucts are subject to negotiation in the Seattle Round? And why isn’t 
a formula approach to tariff cuts the fairest way to proceed? 

Ms. Esserman. Let me just say that we have not just determined 
the best way to proceed. Obviously, we want to achieve the max- 
imum benefits for our exporting community, and so we haven’t de- 
termined, given the fact that overall our tariffs are lower, substan- 
tially lower than other countries’ tariffs, whether or not a formula 
approach would be the best way to proceed. 

Chairman Crane. Thank you very much. Mr. Levin. 

Mr. Levin. Thank you. Welcome. Your testimony did touch this 
more comprehensively than you had a chance to recite here, be- 
cause of time, on issues of compliance and transparency. And I just 
want to urge, as you know, that there be some considerable empha- 
sis on these issues. They are part of the ongoing or not yet ongoing 
discussions with China and WTO. And there are immense problems 
of transparency of compliance that need to be resolved in that econ- 
omy and operating in that economy. And I do think that our WTO 
accession agreements have to address these issues. 

Also, though, there has to be a regimen within the WTO on com- 
pliance and transparency that applies to everybody, including new 
members and emerging economies where transparency often is 
pretty opaque. So I welcome your emphasis on those areas. 

Mr. Crane raised the issue of the role of labor in Seattle. So I 
just want to say a few words about that and you can comment if 
you want. You said the issue of labor will be a high priority, and 
I hope everyone hears that. It may be a bit confusing when you say 
the core of the negotiations is market access. It is not clear to me 
how you put those two together plus your other high priorities, and 
maybe there needs to be some attention, further attention to the 
language that is used. But let me say just a word so we all under- 
stand what is involved, you cited the President in his statement at 
the ILO about people everywhere having a stake in the progress in 
providing everywhere that families have the basic benefits of a just 
society. The President has repeated elsewhere in his talk about a 
leveling up, not a leveling down. I think everybody should under- 
stand what is at stake in terms of U.S. policy is indeed a concern 
about the workers everywhere but a primary concern about people 
who work in this country, and the labor market issue relates glob- 
ally, but also primarily to the impact of trade agreements on Amer- 
icans. 

So I hope you will continue your consultations. I hope you will 
be direct. It is the only way we are going to have enough discussion 
so we prepare for Seattle. It gets a little fuzzy when you talk about 
a work program. I don’t think anybody or most people know what 



36 


that means. I believe there needs to be a hard fight to set up a 
working group that relates to the labor market issues that are vital 
increasingly within the trade equation. And we just all have to dis- 
cuss it and prepare for that and be prepared to make a hard fight 
at Seattle. As you say, it is a high priority and when anybody says 
it is a high priority, the test of it is how hard they fight for it. 

I don’t know if you want to respond. There are lots of other parts 
of your testimony and we are eager to consult and, more than con- 
sult, discuss these issues with you as well as China-WTO if the ne- 
gotiations recommence. 

I want to end by just emphasizing there isn’t much time for a 
major round. We have only a few months now to fully get ready 
and August isn’t, except for some of you and maybe some of us, the 
busiest work period. So I wish you good luck and I just hope that 
you will be clear and direct. And if there is controversy, let’s try 
to have it energize us instead of freezing us in place. End of ques- 
tion. 

Chairman Crane. Mr. Houghton. 

Do you want to respond? 

Ms. Esserman. I would just say. Congressman Levin, I very 
much appreciate your remarks and we certainly share your concern 
and interest in this issue and we look forward to working with you 
and other Members of the Subcommittee to make sure the goals 
and the initiatives in this area are concrete. 

Mr. Levin. Thank you. 

Chairman Crane. Mr. Houghton. 

Mr. Houghton. Thank you very much. Well, Ms. Esserman, you 
do a great job. It is wonderful to have you here. Thanks very much 
for your testimony. I really have two basic questions. One is in 
terms of 301. Is there any thought of the administration reopening 
any of the antidumping and implementing provisions that were ne- 
gotiated in the Uruguay Round in Seattle? Then, maybe could you 
take a crack at that. Then I got another question. 

Ms. Esserman. I can answer that very clearly. The United States 
is firm that it is not appropriate to have antidumping as a subject 
for negotiation in the next round. 

Mr. Houghton. OK. Well, that is good. Now, the Secretary, look- 
ing at your testimony, it seems to me that it is working up toward 
the Seattle Ministerial Conference. There is really a set of two cat- 
egories: one is the housekeeping, the other is the content. House- 
keeping meaning accessions, dispute, settlement review, collabora- 
tion, transparency, recognizing the stakeholder interest, things like 
that. 

Now, they may be most important but it would seem to me in 
terms of the overall thrust of trying to generate business for the 
United States, that the accelerated tariff liberalization and elec- 
tronic commerce are going to be really, really critical. You talk 
about market access. You know, it seems to me that we talk mar- 
ket access and many of the people that we sell to or import from 
talk market access, but there is no sort of monitoring. You obvi- 
ously can see this in terms of our current account deficit. So when 
we are talking about things that produce more business, produce 
more jobs, produce more opportunities, is there any way to monitor 
that market access so that we really know where we are going? 



37 


Ms. Esserman. Actually now that the WTO is a full institution 
there is a much greater ability to monitor countries’ compliance 
with commitments. Perhaps the most visible way in which we en- 
force the commitments is by filing dispute settlement cases. But 
there are also each — there are a number of formal Committees in 
the WTO which serve as a forum for raising concerns, about wheth- 
er a member has complied with their commitment, to try to foster 
compliance, to resolve an issue before a dispute settlement needs 
to happen. And there is also a way to monitor compliance with 
commitments, for example, whether or not countries are reducing 
tariffs according to their commitments, whether or not they are 
providing the true commitments that they signed onto in the serv- 
ices agreement. 

So there is a vehicle for doing that now that the WTO is a full 
institution. 

Mr. Houghton. Yeah, but there are nontariff barriers, such as 
in the distribution systems, so that if you take a look at the raw 
numbers in terms of products imported let’s say from x country and 
exported and it is going the wrong way for us and it is going to 
be a long time until another ministerial and you have all these 
Committees that you have got to go to, isn’t there a sort of simple 
index that we can use to say, hey, you know, this isn’t really quite 
what we had in mind? 

Ms. Esserman. You mean a sort of formula for addressing some 
of the things? 

Mr. Houghton. Yeah. 

Ms. Esserman. We are working on some of these issues. These 
are the very things that we are focusing on in this next round. A 
big area for the new round, as I mentioned, is services. And here 
particularly in the distribution area there are a number of barriers 
to our ability to effectively sell and have effective distribution in 
foreign markets, and that is going to be a high priority for us and 
we will think very carefully about your question. 

Mr. Houghton. Thanks very much. Thank you, Mr. Chairman. 

Chairman Crane. Mr. Neal. 

Mr. Neal. Thank you, Mr. Chairman. Will there be a direct op- 
portunity for labor and business to present their recommendations 
to the ministers at the gathering? 

Ms. Esserman. For labor? I am sorry. 

Mr. Neal. Will there be a direct opportunity for labor and busi- 
ness groups and other vital groups as well to present their rec- 
ommendations and perhaps policy suggestions to the ministers? 

Ms. Esserman. Yes. First of all, there is an extensive and elabo- 
rate process here in the United States in which we consult and re- 
ceive advice both written and with extensive meetings here on a 
ongoing basis. But we do think it is very important for members 
of the civil society to have direct access to the ministers, not only 
just to provide submissions but we had an experiment in the WTO 
this year in doing just that. We had a high-level meeting on trade 
and the environment in which members of the civil society not only 
presented their submissions but also had a chance to present their 
views publicly to the 135 member governments. We are also con- 
templating doing the very same thing on a range of issues the day 
before the ministerial begins in Seattle. 



38 


Mr. Neal. I see. Now, is there considerable amount of propping 
that has to occur for the other member nations? 

Ms. Esserman. Is there a considerable amount of? 

Mr. Neal. Propping. Do you have to prepare them for the kinds 
of questions that they might get from labor and environmental 
groups, for example? 

Ms. Esserman. No, I think that there is a fair, there is a fair 
amount of attention and interest to this issue, but I guess the an- 
swer is no and yes. Yes, in the sense that, as you may know, many 
governments around the world, countries around the world do not 
share our interest in labor. So there is a great deal of work that 
needs to be done. And we are going to talk to other governments 
about the importance of including the labor perspective more 
broadly into the WTO. 

Mr. Neal. So you are suggesting, then, that this is going to be 
a direct participation, this won’t be filtered through? 

Ms. Esserman. We are seeking to include mechanisms for direct 
participation, for venues for direct participation by labor groups, by 
environmental groups, so that they have a chance to directly pro- 
vide their views to the ministers in the WTO. This is something 
that we have been urging on the other countries in the WTO. They 
don’t necessarily share our interest in doing this, but we very, very 
strongly advocated doing it in the environmental area. We think it 
was a successful meeting and we are going to continue to advocate 
doing that in other areas as well. 

Mr. Neal. So this would be for labor, environmental and busi- 
ness groups; they would all have that opportunity? 

Ms. Esserman. Yes, business groups, consumer groups, members 
of society and businesses. 

Mr. Neal. Thank you. 

Chairman Crane. Ms. Dunn. 

Ms. Dunn. Thank you very much, Mr. Chairman. And welcome. 
Ambassador Esserman. It is delightful to have you with us. We 
think you are doing a fine job and appreciate it very much. And 
I might add my invitation to others that Mr. McDermott and I 
have extended to everybody to come to Seattle in the fall and we 
are hopeful that this Subcommittee will be there in some form. We 
look forward to being involved as closely as we can be to make it 
successful. 

I am concerned about the recent ESC, Foreign Sales Corporation 
ruling. And I am very concerned about its impact on American 
business in making us less competitive, which after all was the rea- 
son for starting the ESC provisions in the first place. I am won- 
dering, I am interested in knowing what you think will be the ef- 
fect of the loss of ESC on industries that are important to me, the 
high-tech industry, for example, agriculture, that is an important 
industry to us in Washington State. And I am wondering what you 
plan to do, whether you are going to appeal, but I wonder first if 
you would give us some sense of what you believe the impact would 
be. 

Ms. Esserman. Well, I do think it is premature to determine the 
impact of this. First, we did receive a report that was unfavorable 
to us. It is not finalized yet. So this is the first step in the process. 
We think the panel that made — that wrote that report was plain 



39 


wrong. So we are looking very carefully at all of our options and 
including appeal, which we are looking at quite seriously. Espe- 
cially, given the importance of the issue. But it is really premature 
to assess the impact because there are many more steps still in the 
process. Certainly we share your concern about the decision and 
the importance of this. 

Ms. Dunn. You mentioned earlier that you were working toward 
the accession of several countries to the WTO. I have not heard a 
discussion of that before because we are all so focused on China I 
believe right now and the Republic of China and the PRC and their 
accession. Could you give us some sense of what is happening with 
other nations and what you expect to see in terms of accession of 
other nations at the fall WTO? 

Ms. Esserman. Yes. China does receive a huge amount of atten- 
tion here, but meanwhile we have been making a lot of progress. 
A number of eastern — central European countries have been mak- 
ing a lot of progress in their accessions and we may see about 8 
to 10 accessions by the time of the ministerial, including Baltic 
countries, Albania, Georgia, Armenia, and others so we view this 
as a very important development because here this great number 
of countries are making the very significant reforms that are nec- 
essary to transform their economies into market economies. 

Ms. Dunn. And that is so helpful because they will be living 
under the rules from then on. It will be very useful to us since we 
have been so forthright and open to other nations. 

Let me ask you one other question. You had mentioned in re- 
sponse to Congressman Crane’s question that you were going to 
continue negotiating on accelerated tariff reduction but any results 
might take effect sometime later, I thought is what you said. We 
are concerned on behalf of certain industries. I represent the forest 
products industry, for example, who have been working on this 
issue for years and really would like to see it move along. I am 
wondering if you could clarify that for me so that I could pass along 
to them the sense of the USTR. 

Ms. Esserman. Absolutely. The accelerated tariff liberalization 
initiative is a very important priority for us. The President moved 
forward on this in 1997 in Vancouver and we have been pursuing 
it since. And last year at the APEC leaders meeting it was deter- 
mined this issue would go into the WTO to see conclusion in 1999 
and we are continuing to work on that. It is very important to seek 
early results in these areas. 

As you know, there have been concerns that Chairman Crane 
mentioned among the agricultural community and, working with 
the agricultural community and those interested in these sectors, 
we believe that we have come up with an approach that addresses 
the interests of these sectors as well as the agricultural commu- 
nity. And here there would be an implementation of results, provi- 
sionally, for example a lowering of tariffs early, but the final imple- 
mentation would be contingent and a part of the overall package 
at the end of the round. And that is how we see fitting the two to- 
gether. 

Ms. Dunn. Good. Thank you very much. I might just say, Mr. 
Chairman, when we were in New Zealand last December we had 
the opportunity to sit down with Mike Moore, who will be the new 



40 


head of the WTO, and New Zealand was a very, very strong part- 
ner with us at APEC and supported our position completely on 
this. So I think that makes it more hopeful. 

Thank you very much. 

Ms. Esserman. Might I just add right there, if I could, just to 
say, number one. New Zealand is very active in this initiative that 
is so important to us, but also just to say how delighted we are that 
we have Mike Moore as the Director General of the WTO. I know 
that you had expressed your views on the importance of having 
him here. He, I think, will be terrific for the WTO, for the United 
States, because he appreciates the importance of trade liberaliza- 
tion to our future prosperity. He has a common touch. I think he 
will be a very effective advocate of trade to our people and the 
world, and I think he understands very much the importance of the 
American market. 

Chairman Crane. To which I will add amen. 

Mr. Becerra. 

Mr. Becerra. Thank you, Mr. Chairman. Ambassador Esserman, 
thank you for being with us. In your testimony you make mention 
that one of your goals is to reduce existing tariff disparities in in- 
dustrial goods. I don’t think there is any sector, at least in the 
American economy, that was required to make greater concessions 
under the Uruguay round than the textile and apparel industry. 

And I know the President, I have some of his quotes here that 
he has made with regard to that in November of 1993. The Presi- 
dent said, and I quote, “I do recognize and appreciate that the U.S. 
textile and apparel sector has been asked to make substantial con- 
cessions under the Uruguay round.” he went on to say that the 
U.S. will, quote, “insist that our willingness to phase out textile 
quotas be linked directly to the achievement of effective market ac- 
cess in individual countries by removal of nontariff barriers and 
lowering tariffs.” 

I understand that countries — Pakistan, for example, are asking 
that we accelerate the removal of some of our barriers, yet in some 
areas, Brazil, Argentina, Pakistan, India, we have the most dif- 
ficult time getting some of our products into those countries. Given 
the concessions that this sector of our economy has made, don’t 
you — let me ask you, have you taken a posture, any position with 
regard to textile and apparel industry? Are you going to try to pro- 
tect those industries from further concessions being made in this 
ministerial and what are you planning to do to try to open up those 
other markets that are out there for our U.S. textile and apparel 
products? 

Ms. Esserman. You are quite right. Congressman, that there 
have been a number of these countries calling for us to accelerate 
our liberalization of our expiration of the quotas in textiles and we 
have made quite clear that that is simply not in the cards. We will 
not be doing that. And at the same time we have raised concerns 
about the lack of openness of their market, for example, India in 
particular. And so, we have very much been clear on this issue in 
Geneva. 

Mr. Becerra. So I take that as a clear sign you will do what you 
can to protect the industry as it is and also open up those markets 



41 


that agree they would participate in the free trade of those prod- 
ucts. 

Ms. Esserman. We are going to be pursuing opening up these 
markets and we have no interest in accelerating the expiration of 
these quotas. 

Mr. Becerra. Thank you for that. I don’t know if you heard all 
of the testimony by Members of Congress, but Congressman Weller 
and I focused on the issue of cultural content rules. Can you tell 
me if this is at all an issue that you are planning to address at the 
ministerial in Seattle, the whole issue of cultural content? I know 
it is a big issue with Canada, obviously France, other countries as 
well. Give me the Trade Representative’s position at this stage on 
that issue. 

Ms. Esserman. Let me just say generally that the issue of cul- 
ture is a big and important issue and we need to work together to 
ensure that we are most effectively addressing the issue. Of course 
all countries have a right to preserve their cultural heritage, but 
what we are concerned about is when those measures are just a 
disguised form of protectionism. 

Mr. Becerra. Are you planning to raise that though in Seattle? 

Ms. Esserman. We are going to be raising and addressing these 
issues and we want to work with you to make sure that we are ad- 
dressing your specific issue. Canada last week in Geneva raised the 
issue of culture. It wasn’t quite in the form of a proposal, we are 
not sure what it is; but let me just say that we are going to be ap- 
plying the standard that I just indicated. But we would like to 
work with you to make sure that we are fully addressing your con- 
cerns. 

Mr. Becerra. One last question, I know we need to run for a 
vote, the TRIPs agreement, the trade-related aspects of intellectual 
property rights agreement, I know that some countries have asked 
to reopen that and I know that we have in the year 2002 an oppor- 
tunity to do just that. Are you planning to reopen any type of nego- 
tiation on TRIPs before 2002? 

Ms. Esserman. At this point we don’t envision reopening the 
TRIPs agreement. Our most important objective here is to ensure 
that other countries comply with their obligations here. That is 
very important to us. We have been working closely with industry, 
with our trading partners around the world, not just to wait till 
when their commitments come due but to work in advance of that 
to ensure that we have the maximum of opportunity for countries 
to be meeting their commitments in this important area. 

Mr. Becerra. Please be sure to let us know if you are at all 
thinking of opening that up before 2002 because that would con- 
cern a number of us who don’t see enough progress. And a final 
question, if I could ask, with regard to some of the World Intellec- 
tual Property Organization, WIPO agreements that were reached 
to try to provide protections for intellectual property, I know a 
number of countries have not ratified some of those various agree- 
ments. Are you going to try to push to see if we can encourage 
countries to see if we can ratify those quickly? 

Ms. Esserman. Yes, we are very much doing that. 

Mr. Becerra. Thank you very much. 



42 


Chairman Crane. Ms. Esserman, I apologize because we don’t 
control the procedure over there on the floor, but this is the second 
bells and so the Subcommittee will stand in recess subject to call 
of the Chair. I urge colleagues to run over there, vote, and run 
right back. We will be right back. 

[Recess.] 

Chairman Crane. We apologize, Ms. Esserman, for the interrup- 
tion. I will now yield to our distinguished colleague from Min- 
nesota, Mr. Ramstad. 

Mr. Ramstad. Thank you very much, Mr. Chairman, and thank 
you. Madam Ambassador, for your testimony and for the good job 
you are doing. 

Earlier Mr. Levin stressed the need to have fighters for Amer- 
ica’s interest at the WTO Round in Seattle. I can assure you Min- 
nesota will be well represented with fighters, our delegation will be 
headed by our Governor, Governor Jesse Ventura, and he is a fight- 
er in every sense of the word. And like our Governor, all Minneso- 
tans are concerned that our farmers get a fair break, which means 
significant liberalization for the agricultural sector. 

I am sure you are familiar with the recent study done by the 
Dutch Agriculture Ministry in preparation for the Seattle Ministe- 
rial meeting? 

Ms. Esserman. I am not familiar with the specifics of that. 

Mr. Ramstad. This study concluded that dairy compacts in our 
country undermine our position for reduced trade barriers for dairy 
products and that if the United States erects barriers like the 
Northeast Interstate Dairy Compact within our country, then we 
have no standing to negotiate reduction of agriculture trade bar- 
riers elsewhere. The Northeast Interstate Compact expires on Sep- 
tember 30 of this year and unfortunately there are some in Con- 
gress who want it to continue to the detriment of efficient dairy 
farmers in our country by passing a bill, H.R. 1402, This would be 
a death sentence for our dairy farmers. 

I would like to first of all, Mr. Chairman, submit this letter for 
the record from Governors Ventura and Tommy Thompson of Wis- 
consin opposing, strongly opposing, H.R. 1402. 

Chairman Crane. Without objection so ordered. 

[The information follows:] 



43 


State of Minnesota State of Wisconsin 

Govermor Jesse Ventura Governor Tommy G. Thompson 


July 14. 1999 


Chairman PMI Crane 
Subcommittee on Trade 
Committee of Ways and Means 
U.S. House of Representatives 
Washington, DC 20515 

Dear Chairman Crane: 

We are writing on behalf of dairy farmers in the Upper Midwest to ask that the 
Ways and Means Subcommittee on Trade consider the bill H.R. 1402 before the August 
recess. We are concerned that this bill violates international trade agreements and that its 
passage will be detrimental to the United States’ negotiations at the World Trade 
Organization (WTO) negotiations in Seattle. 

The Dutch Ministry of Agriculture recently released a report (attached) that 
analyzed U.S. federal dairy policy, concluding that our federal dairy policy violates the 
WTO rules. The European Union plans to bring this up as a negotiating tool during the 
trade talks. 

We believe that the passage of H.R. 1402, which virtually legislates the present 
dairy milk marketing order system, will put the United States at a disadvantage at the 
WTO talks. 

Mr. Chairman, we believe, as you do, in free and fair trade. We want to ensure 
that dairy farmers are able to compete in open markets worldwide. We hope that your 
Subcommittee would consider holding hearings on H.R. 1402. 

Sincerely, 


Tommy Mompson 
Governor of Wisconsin 


Cc: 


Speaker Hastert 

Minnesota and Wisconsin Congressional Delegation 



44 



CONSUMERS 

FOR 

WORLD 

TRADE 2000 L street, NW. Suite 200 Washington. DC 20036 (202) 7854835 Fax (202} 7854835 


National Advisory Council 
C. FRED BERGSTEN 
ISAIAH FRANK 
WILLIAM FRENZEL 
HENDRICK S. HOUTHAKKER 
PETER F. KROGH 
WILLIAM MATSON ROTH 
SEYMOUR J. RUBIN 
FRED SANDERSON 
PHILIP H. TREZISE 
CLAYTON YEUTTER 

Directors 
DOREEN L. BROWN 

President 

Consumers tor World Trade 

PATRICIA J. DAVIS 

President 

Washington Council on intemaaonai Trade 

SAM M. GIBBONS 

Chairman 

Gi&Bons & Company 

CHARLES P. HEETER.JR. 

Associate Parmer, Oovemment Affairs 
Andersen Wondvade 

PHYLLIS SHEARER JONES 

PrnsirtentS CEO 
0an mternaconai 


FRANK X. KELLY 

vice President 
Liz Ciairoorna. Inc. 

VIRGINIA H. KNAUER 

Director 

U 3. Office of Consumer Affairs (Ret.) 


WILLIAM C. LANE 

Washington Direaor of Governmental Affars 
CaterpiUarlnc. 


LEWIS E. LEIBOWITZ 

Hogan 4 Hanson LLP 


FRED J. MARTIN, JR. 

Senior Vice President, 

Bank of Amenca (Pet ) 

WILLIAM A. MAXWELL 

International Trade Policy Manager 
Hewlett Packard 


R. K. MORRIS 

Cireaor, International issues 


JANET A. NUZUM 

Vice President 4 General Counsel 
International Dairy Foods Assoaaton 


July 29, 1999 


Dear Congressman: 

Consumers for World Trade, a national, nonprofit, nonpartisan 
organization representing consumers' interests in open markets and 
expanded trade, wishes to express its strong concerns over dairy 
legislation which may be considered soon on the House floor. 

H.R. 1402, sponsored by Representative Roy Blunt (R-MO) and reported 
recently by the Committee on Agriculture, would reverse market-okented 
reforms to domestic dairy policy, increase consumer costs for milk and 
dairy products, and undermine our intemationl trade interests in 
expanding global markets. We urge you to oppose this legislation if it 
comes to the House floor. 

U.S. daily policy is admittedly complex. Even our foreign competitors, 
however, have identified the irony embodied in this bill. A recent report 
by the Dutch dairy industry suggests that U.S. dairy policy is 
domestically focused and moving towards increased support and market 
intervention. These moves will make it more difficult, and less important 
the Dutch suggest, for additional market-oriented reforms in the 
upcoming trade negotiations in the World Trade Organization (WTO). 
Tlie Dutch point out that the pending dairy bills moving through 
Congress will likely lead to flirther price and supply distortions on world 
dairy markets, which may place the United States at risk of violating its 
WTO obligations. U.S. commitment to more open agricultural trade is 
being called into question. 

Unfortunately, many dairy markets around the world are characterized by 
highly protectionist regimes of support and trade barriers. That is why the 
upcoming WTO negotiations are so critical. Opening up dairy and other 
agricultural markets globally and eliminating the distortions that flow 
from protectionist agricultural policies are important goals of the 



45 


upcoming WTO negotiations. These reforms will benefit consumers and U.S. dairy producers alike. 
However, legislation to increase federally-mandated milk prices, cross-subsidize manufactured dairy 
products, and extend domestic price supports will seriously undermine U.S. credibility in these 
negotiations and diminish our ability to achieve our WTO objectives. How, for example, can we hope to 
convince our trading partners in the European Union to reform significantly their Common Agricultural 
Policy and maintain open markets for agricultural products if we ourselves do not lead the way in 
agricultural trade liberalization. 

The United States needs to act responsibly and demonstrate a genuine commitment to more open 
markets and expanded trade. Increasing protection for dairy farmers in certain regions of the United 
States is against the interests of a more profitable national industry, and against the interests of all 
consumers of dairy products. Please vote against H.R. 1402. 


Doreen L. Brown 
President 

Consumers for World Trade 


Mr. Ramstad. Madam Ambassador, let me just ask you this: You 
don’t believe, do you, that it is in our best interest to continue with 
this Northeast Compact? 

The USDA has already testified in opposition to the legislation 
in front of the Agriculture Committee. I think it is a fair question. 
It just seems to me if we let it expire we will be on solid footing 
going into the agriculture negotiations. 

Ms. Esserman. Well, I would of course never agree with our agri- 
culture — never disagree with our Agriculture Department. 

Mr. Ramstad. You never disagree. 

Ms. Esserman. Would not disagree with our Agriculture Depart- 
ment. I understand that Secretary Glickman has, if I understand 
it correctly, has opposed the market ordering aspect of this par- 
ticular package but not the support aspect of it. And from that 
standpoint, we have looked at the support aspect of it. By itself it 
does not violate international trade obligations. 

Mr. Ramstad. So you don’t agree with the Dutch Ministry of Ag- 
riculture, the Dutch study that really concluded our Federal dairy 
policy violates the WTO rules? That is their bottom line. 

Ms. Esserman. As I said, I have not even seen this study and 
I would be loathe to disagree — loathe to agree with the conclusion 
of a study that I have never seen. 

Mr. Ramstad. I will he happy to share that with you as well as 
with Members of the Subcommittee. 

Thank you for your very candid, straightforward answer that you 
share Senator Glickman’s opposition to continuing this compact. 

For my remaining minutes, could you just elaborate about how 
provisional implementation works and is it realistic? 

Ms. Esserman. I do think it is realistic. I think this is a good 
way to ensure that we are securing the goals of our agriculture 
community and also ensuring that we serve the interests of our in- 
dustrial base. First, as I said at the outset, it is critically important 
to succeed that we have a broad package at the end of the day, at 



46 


the conclusion of the round to ensure that all of our interests are 
served and that our agriculture community’s interests are served. 

The accelerated tariff liberalization initiative includes initiatives 
that fully were pursued in the Uruguay round and in fact in the 
Uruguay Round Agreements Act there is direction to us to continue 
to pursue early liberalization in these areas. So we are going to 
continue to pursue results, early results. We believe the way to 
meld the interest is they would be achieved on a provisional basis, 
on a provisional early basis, and then made permanent at the end 
of the round, so that these industries continue to have a stake in 
the negotiations until the final day, which is very important to our 
agriculture community. 

Mr. Ramstad. Thank you. Madam Ambassador. 

Thank you, Mr. Chairman. 

Chairman Crane. Mr. Portman. 

Mr. Portman. Thank you, Mr. Chairman, and. Ambassador 
Esserman, thank you for your testimony today. I told you in ad- 
vance what my question was going to be but let me lead up to it 
by saying as a free trader and someone who strongly supports an 
effective WTO, I share the ambitious agenda you have for the min- 
isterial and for the new round and indeed hope to work with you 
to make that possible. It includes improving the WTO as you stated 
in your testimony. 

You have also said that the first step is to ensure compliance 
with existing agreements, and I think that is fine. I would go one 
step before that and say we need to ensure compliance with exist- 
ing dispute resolutions, the settlements that we have already en- 
tered into that are not yet being implemented where we still don’t 
have relief for U.S. industry. Again as a free trader and someone 
who is very interested in accession of China to the WTO and in the 
viability of the WTO system, I am very concerned about the fact 
that we are not ensuring just that those agreements that we have 
made since the last round are being implemented, but that indeed 
the dispute resolutions are being taken seriously. With the beef 
and banana cases, taken together, with the Europeans we have 
about $300 million in retaliation now against the European Union, 
and many on the Hill frankly think we have achieved a victory, 
and it is off a lot of people’s radar screens. That concerns me be- 
cause in fact we have absolutely no relief in sight for the U.S. in- 
dustries affected. In the banana case, as you know, there is a possi- 
bility of that but the Europeans have continued to put forward re- 
gimes that are even more illegal along the lines of the WTO illegal 
regime that was already determined as such by two GATT panels 
and WTO. In the beef case, heads of state are going around saying 
we will never comply. 

So I guess my focus would be to be sure that this system works, 
the standard of success is going to be whether U.S. industry re- 
ceives the relief that is due them under international trading rules, 
and as you and I have talked about in the past and I have talked 
to your predecessors about this, I feel strongly that in order for us 
to have the free trade caucus here on the Hill prevail on a number 
of issues, including WTO accession issues but also on fast track 
and other issues, we have to show the current system works. 



47 


I would ask you today if that is your agency’s standard of success 
and, if so, what can we do to increase the likelihood that with that 
standard of success measurable relief will indeed be provided to 
U.S. companies in these and other cases. 

Ms. Esserman. Congressman, well, I share your views about the 
problems of compliance, compliance not only with agreements but 
compliance with dispute panel rulings. I also share your view that 
the ultimate test of success is getting results for our industry. And 
to that end, we are deeply disappointed by the European Union’s 
behavior in both of these disputes. I might say that they are alone 
in how they have responded to dispute settlement panel rulings. 
Even Japan has complied with dispute settlement panel rulings. So 
while we do believe we need to amend the dispute settlement 
mechanism and we are working intensely on it now because the ba- 
nana episode certainly showed that we needed to make some im- 
provements, the big problem is Europe and not more than the dis- 
pute settlement system itself 

Let me just talk about bananas and beef and a little bit about 
the reform. I do believe that the combined effect of the retaliation 
in the two cases is starting to have effect. And by effect, I mean 
that the private sector interests, that upon which the retaliation is 
imposed, the 100 percent duties, are now beginning to feel the 
pinch and they recognize that there are consequences if their gov- 
ernment does not comply with panel rulings, and we have gotten 
a number of indications that that is so. And that is the point of 
having retaliation, so that — you cannot have retaliation, as we all 
know, because that does not bring the benefits to the industry, but 
to put maximum pressure on the government ultimately to comply, 
and that is what our goal is here. 

Mr. PORTMAN. Again I would restate in a slightly different way 
what I said earlier, which is if these cases cannot be resolved fairly 
with our allies, admittedly the Europeans have been the most fla- 
grant violators, then it is hard for many of my colleagues on the 
Hill to understand how we can ever expect a country like China or 
other countries that we like to see accede to the WTO comply with 
similar rulings. I would hope that these cases they are precedent 
cases certainly for agriculture, and I would argue for the WTO dis- 
pute settlement system in general, continue to be a top focus of 
USTR. 

I commend you for your success in the litigation but now it is a 
question of implementation. I encourage you to turn up the heat 
and be sure that these two cases are resolved and others that are 
outstanding. As you said earlier, the Europeans are one country 
that has most commonly been out of compliance with these cases. 
It is important to note and get on the record that the U.S. has in- 
deed complied every time the United States has been found in vio- 
lation of a WTO ruling. 

Ms. Esserman. Let me assure you that this remains a top pri- 
ority for us because retaliation is not the answer. In addition, we 
are also working to reform the dispute settlement mechanism itself 
because we do not want a country as Europe did to seek to exploit 
ambiguities in the rulings. What we are now seeking is to have a 
clarity about the procedure that should be employed if a country 
is questioning whether or not another country has truly taken ef- 



48 


fective compliance measures consistent with the panel ruling. So 
here we are setting up very clear procedures and we are also seek- 
ing to take time, shorten the — take time out of the early phases of 
the dispute settlement process. So we are working at bottom to se- 
cure more effective compliance rules. 

Mr. PORTMAN. I know I am over my time, I apologize, but the fi- 
nality of the rulings is very important. I know we have talked 
about the endless loop before. I was going to talk about that with 
a later panel, but I know USTR has also focused on that. If we are 
going to glue up the WTO we have to have finality in these cases 
so countries cannot continue to endlessly elongate the litigation. 

Ms. Esserman. Right. Finality is what we are trying to achieve 
here. 

Chairman Crane. Mr. Weller. 

Mr. Weller. Thank you, Mr. Chairman. Good afternoon. Ambas- 
sador. Appreciate the opportunity to talk with you. Earlier when I 
testified before this Subcommittee I raised the issue of the loss of 
domestic film industry jobs and economic impact of the issue of 
runaway production, a study done by the Directors Guild and 
Screen Actors Guild which was recently released, and you may not 
have seen that yet, but they estimate, according to the study, that 
we have lost about 125,000 domestic film industry jobs over the 
last decade. The problem is accelerating. We have lost 20,000 film 
production jobs in the United States last year and if it continues 
to escalate at the current trend we could see as many as 35,000, 
36,000 jobs lost next year. 

So representing the Chicago area and concerned about in other 
communities around this country where film production is an im- 
portant part of our economy, I believe that the issue of runaway 
production particularly, as well as the cultural content issue, 
should be on the table at the upcoming Seattle Round. And I guess 
what are you familiar — to begin with, let me just ask, are you fa- 
miliar with the cultural content issue? 

Ms. Esserman. I am familiar to some degree with this issue. 

Mr. Weller. Well, do you believe that the Canadian cultural 
content rules, are they designed to solely protect Canadian culture 
or do you believe that to some extent these rules are more designed 
to protect Canadian jobs or actually create additional jobs and at- 
tract them from the tlnited States? 

Ms. Esserman. Well, Congressman, we certainly understand a 
country’s right to take legitimate measures to promote their cul- 
ture, but we do have concerns about measures such as some of 
these that are really economic protection in disguise. I don’t know 
all of the particulars in this area. But as I mentioned to Congress- 
man Becerra earlier, we would be pleased to work with you to 
make sure we have this fully on the agenda in a way that serves 
the interests of this sector. 

I know there are a number of factors here that have contributed 
to the runaway jobs, including the incentives, also wage rates and 
exchange rates, which are a little bit more difficult to address, as 
I know you must appreciate. But we want to work with you to 
make sure we have a full appreciation and we are most fully 
achieving what we can for this sector. 



49 


Mr. Weller. Ambassador, it appears when the television sta- 
tions in any of the networks that serve Canada are required to 
have at least 60 percent of their programming be Canadian cul- 
tural content, that it makes it very difficult for American-produced 
television as well as films to be shown in Canada. At the same time 
they turn right around and through some very aggressive financial 
incentives are working to attract our jobs. 

Let me ask you: Is it your view that the cultural content rules, 
that Canada is applying them fairly? Obviously I think we all want 
to protect the culture of the individual countries. And personally 
representing Chicago area, having Blues Brothers 2000 filmed in 
Canada had an impact on our culture because Blues Brothers are 
part of our culture in Chicago. But do you believe that the rules 
as the Canadian Government is currently administering them, are 
they applied fairly and evenly across the board? 

Ms. Esserman. Congressman, I am not familiar with all the par- 
ticulars here, but we have a number of concerns about the protec- 
tive effect of these rules, culture rules in Canada. 

Mr. Weller. Are you familiar with the point system that they 
use to qualify for tax incentives? 

Ms. Esserman. I am not familiar with the specific figures of it, 
but I would be delighted to become familiar to make sure we are 
fully looking at that issue. 

Mr. Weller. I welcome the opportunity to sit down with you rel- 
atively soon to discuss this issue. Clearly it is a major economic 
issue not only in Chicago but nationally. We have spent a lot of at- 
tention over the last 9 to 12 months talking about the loss of the 
steel industry jobs. We have lost 10,000 steel industry jobs in the 
past year, we have lost twice as many film industry jobs. It is 
clearly an issue that must be on the table. 

I look forward to working with you and look forward to sitting 
down with you shortly. Thank you. Ambassador. Thank you, Mr. 
Chairman. 

Chairman Crane. Mr. English. 

Mr. English. Thank you, Mr. Chairman. Ambassador Esserman, 
welcome, and your comments as always are thoughtful and useful. 
I wanted to pursue a line of questioning that Mr. Houghton had 
opened up where I would welcome your elaboration. And I want to 
start by reading a couple of lines from an article that was pub- 
lished yesterday in Korea. “Seoul will join forces with Japan, India, 
Brazil and the Association of Southeast Asian Nations to revise the 
antidumping agreement of the World Trade Organization and thus 
eradicate the possibility of abuses by the world’s main trading na- 
tions, a foreign affairs trade ministry industry official said yester- 
day. The antidumping agreement is one of the hottest issues under 
discussion in the process of launching the so-called new round ne- 
gotiations.” 

Now, given your comment to Mr. Houghton that the administra- 
tion would resist reopening the antidumping agreement, may I ask, 
given the effort that is being made here by some of those countries 
that certainly in the case of steel have clearly been identified as 
being involved in dumping on our domestic market, what is the ad- 
ministration’s plan to prevent the Seattle Round from resulting in 
a weakening of our rules against unfair trade and given the com- 



50 


mitment of these countries to try to make this one of the focuses 
of the Seattle Round? How committed is the administration and 
what is the administration’s strategy for heading off this result? 

Ms. Esserman. Congressman English, let me assure you that we 
are very committed to head this off. I am quite aware of the deter- 
mination of Japan and Korea and some of the ASEAN countries. 
But what I would like to do is have — I think I do have an oppor- 
tunity to meet with you tomorrow. I would like to use that occasion 
to go into our strategy, which is quite detailed, but I would share 
it with you privately rather than have our trading partners have 
a chance to hear that. 

Mr. English. I will certainly take that opportunity and I will 
take that as a very positive response on your part and I look for- 
ward to that meeting. 

On a separate issue, obviously we are in the process of a negotia- 
tion with China that will eventually lead to the resolution of their 
accession into the WTO. But separately, we have had a negotiation 
with the government in place on Taiwan. And it seems that Taiwan 
is in a more advanced place for being considered as a candidate for 
WTO membership. On Taiwanese accession, do you feel it is pos- 
sible that the WTO could consider Taiwan for membership without 
creating a sovereignty issue with China? 

And let me express in my view, Taiwan should be considered sep- 
arately from China. And if Taiwan is in a position for WTO mem- 
bership, my hope is that they will be considered. Can you comment 
on Taiwanese accession in and the administration’s view of this 
issue. 

Ms. Esserman. It is true that at this moment that the Taiwan 
accession is more advanced than the China accession. And we — 
there was a working party or meeting in Geneva last week I be- 
lieve or last Friday on the Taiwanese accession. Let me simply say 
that we are going to continue to work with Taiwan on its accession 
and you know we look to the successful accession of both Taiwan 
and China. 

Mr. English. Outstanding. 

Mr. Chairman, that concludes my questioning. Again, Ambas- 
sador, I thank you for the opportunity to pursue this line. 

There are many of us in Congress who are very concerned that 
the Seattle Round may become a focus for an effort to water down 
some of the basic protections that we are able to provide under cur- 
rent WTO rules for domestic industries that are the target specifi- 
cally of unfair trade practices. Mr. Cardin and I have legislation 
which we hope the administration will favorably consider over time 
to strengthen our existing laws in America to allow remedies to our 
domestic companies and workers in some of these situations. 

We welcome your examination of that legislation which is WTO 
consistent, and I look forward to our dialog. 

Ms. Esserman. Thank you. 

Chairman Crane. Mr. Watkins. 

Mr. Watkins. Thank you, Mr. Chairman. And Ambassador, al- 
ways great to see you. You know, we know that free trade depends 
upon fair trade. And I think we reflect, we study, we realize we 
have got to have or need a WTO to make sure we have fairness, 
and we assure compliance. 



51 


And I look forward to the Seattle round on November 30. I think 
we have tremendous opportunities and I am a person who wants 
to see those opportunities made available for the next generation 
in the 21st century and there is no question our maintaining and 
sustaining a strong economic growth depends on our being in the 
trade arena. I got a couple questions and I would like to ask you. 
Because I think the WTO’s credibility is at stake. I have — I don’t 
apologize but I have become obnoxious about the beef deal. I know 
I have. I pound the table, I have shouted, I have jumped up and 
down and got out of character because I think we have not fulfilled 
our commitment to that particular industry. And I think we slight- 
ed that situation. 

And let me say I am not a negotiator, I guess I could say maybe 
I have been a horse trader to a certain extent, but 10 years ago 
we realized that the European Union on banning the beef hor- 
mones on our beef coming into that country, they held us at bay 
for 10 years. Then we go through all the appeals. And then basi- 
cally finally said, well, after that period of time, looking through 
$900 million possible tariffs, we said there is $205 million penalty, 
or $205 million that your shop, USTR said, hey, we are going to 
finally come up with European Union, the 1^0. I will put it that 
way. The WTO finally said $116 million. That is nearly $90 million 
that we sent there. And I didn’t hear no screaming, no position 
being discussed about that. That is an 84-percent reduction. That 
is a win in anyone’s position on someone else’s part. I think we got 
to have stronger teeth. 

And this is where I want to go to your point. You stated “Euro- 
pean Union’s failure to implement panel results in two cases, how- 
ever, has been troubling and we hope to ensure that the future los- 
ing parties comply to face penalties in a more timely fashion.” 

Ambassador, “we hope to ensure.” What are we doing to put 
some teeth in it? “We hope” is feeble. It is wimpish if I can say 
that. What are we doing? I think we have to be strong if we are — 
if we are going to put some backbone behind the WTO on this stuff. 
I have high hopes of Mike Moore from New Zealand. In fact, I am 
going to New Zealand during August and we will be meeting some 
folks down there on trade. But what are we doing there when you 
say “we hope” ? 

Ms. Esserman. Well, Congressman, I regret that you said the 
word “hope.” we are working with great resolve to try to achieve 
results in two ways. First, as I mentioned to Congressman 
Portman, to correct, to amend the dispute settlement rules so there 
is clarity in dealing with the situation like Europe where a country 
is not seeking to comply but seeking to drag its feet. So we are try- 
ing to set up rules where there will be a time certain where coun- 
tries pay the consequences for failure to implement panel rulings. 
So we are changing the rules. 

And second, on beef, we share your disappointment in that retal- 
iation is not the end that we are seeking for the beef industry. 
However, the retaliation, as I mentioned to Congressman Portman, 
is now starting to have its effect. There are many, many producers 
in Europe who are now feeling the effects of this retaliation, which 
is, after all, 100 percent of the value of a product. We impose 100 
percent retaliation. 



52 


These companies are feeling the effect of the retaliation. And now 
the government is forced to see the consequences of its failure to 
come in compliance. I am not saying that we are there yet, but 
we — and we don’t feel that we are there yet, not at all, because 
there is no result here. We share your frustration. 

Mr. Watkins. Let me if I could, Mr. Chairman, could you provide 
us instead of saying — instead of saying hoping, could you provide 
us those steps that you are planning on taking and recommending 
and also about the — ^you said ensuring timely implementation? Also 
what we are going to be doing to try to ensure timely implementa- 
tions? Can you provide it for me and also the Subcommittee? 

Ms. Esserman. I would be pleased to do that. 

Mr. Watkins. I wonder about us saying we are not going to take 
up antidumping discussions at the Seattle WTO meeting because 
it is an issue in the steel industry, it is an issue in the oil industry, 
it is an issue now with Mexico, saying maybe going to put 215-per- 
cent tariffs on some agriculture going into Mexico. How can we say, 
stand idly by and say we are not going to discuss that or have that 
on the agenda there. That is one question. And who is handling the 
antidumping in your shop at the USTR in the discussion so I can 
discuss some things with them? 

Ms. Esserman. I am, and I would be delighted to discuss those 
issues with you. We believe that it is very important to the United 
States’ interests to have strong and effective antidumping laws. 
And the purpose of Japan and Korea and the ASEAN countries is 
to weaken those disciplines. I think we have seen in the course of 
this steel crisis how incredibly important it is to have strong and 
effective rulings against unfair trade. It is the basis upon which we 
can move forward boldly to open up our markets. 

So that is the basis for the position. I would be pleased to come 
and talk to you. 

Mr. Watkins. I would welcome that. I say this in high hopes 
also, for the future for the WTO, try and make sure that we have 
free and fair trade around. I try to confront it in a positive way, 
because I want it to work. I want us to make sure we assure our 
industries across — whether it is bananas or beef, the other aspects 
of it, make sure that we know that we are making the fairness a 
major issue by making sure they follow what we have agreed to. 

So, again, I will say in a very positive way, I hope and I know 
that we have got to be there. I want to, I am pushing that. I want 
a 21st century globally competitive economy. Build a trading center 
in Oklahoma. 

I want to make sure that we are out in front leading because our 
future if we are going to be an economic power has to be out there 
in trade. 

Thank you for the job you are doing. 

Ms. Esserman. Thank you. 

Chairman Crane. Let me thank you. Madam Ambassador. We 
appreciate your patience. We apologize for the disruption during 
your appearance today. 

With that, we will excuse you and welcome our next panel. 

[Questions submitted by Chairman Crane and Ambassador 
Barshefsky’s responses follow:] 



53 


Questions Submitted for the record By Congressman Philip M. Crane for 
Ambassador Charlene Barshefsky 

Question 1: As you know, I am concerned about using the WTO to deal with labor 
issues that are not related to trade and for which there is no national or inter- 
national consensus. Please detail the Administration’s plan to handle labor issues 
at the Seattle Ministerial. 

Answer 1: 

The implementing legislation for the Uruguay round requires the President to 
seek the establishment of a WTO Working Party on trade and labor standards. We 
sought to accomplish this at the Singapore Ministerial meeting but were not suc- 
cessful. At Seattle we again will attempt to obtain the establishment of a Working 
Group on Trade and Labor. The purpose of this Group is to have a serious examina- 
tion — through discussion and analysis — of a number of trade related labor topics. 
We believe that the International Labor Organization, the World Bank, the Inter- 
national Monetary Fund, and the United Nations Conference on Trade and Develop- 
ment should collaborate on this work. In this regard, we also feel that the ILO 
should be given observer status at the ILO. The Working Group would prepare a 
report for submission to the next WTO Ministerial. 

We recognize that ILO is the preeminent international labor organization. It has 
energetic, new leadership, and it has negotiated significant agreements in the past 
year involving core labor standards and exploitative child labor. However, there are 
important issues involving the relationship between trade and labor that require 
consideration at the international level, and the ILO is not equipped to undertake 
this review. On the other hand, the WTO, working with other international institu- 
tions, can make a valuable contribution to the understanding of these issues. Our 
WTO proposal outlines six trade related labor issues; these are all issues that can 
benefit from the WTO’s comparative advantage as the international community at- 
tempts to understand them better. We have proposed a constructive and supportive 
role for the WTO in the labor area. 

Question 2: During the August 5th Trade Subcommittee hearing, I indicated 
THAT I WAS concerned THAT U.S. BUSINESSES WERE BEING HANDICAPPED BY NA- 
TIONAL LAWS AND PROCEDURES THAT RESTRICT THEIR ABILITY TO GET THE RIGHT 
PEOPLE TO THE RIGHT PLACE AT THE RIGHT TIME. I WAS PLEASED TO SEE MENTION 
OF “MOVEMENT OF NATURAL PERSONS” AS AN AREA RIPE FOR NEGOTIATIONS IN YOUR 
RECENTLY TABLED SERVICES PAPER. I WOULD APPRECIATE AN EXPLANATION OF YOUR 
PLANS TO PROCEED ON THIS IMPORTANT ISSUE IN THE UPCOMING ROUND OF NEGO- 
TIATIONS WHICH WILL BE LAUNCHED IN SEATTLE. 

Answer 2: 

To maintain their competitiveness in foreign markets, U.S. services companies 
often require the ability to bring along their top personnel to manage operations and 
perform specialized tasks overseas. Some U.S. companies also perform short-term 
consultancy or other work requiring brief visits. The WTO General Agreement on 
Trade in Services (GATS) recognizes this by creating a category for temporary entry 
of “natural persons” as service suppliers. Further, there is work underway in the 
GATS to promote greater transparency in government regulation, an area that U.S. 
companies have identified as a particular problem with respect to such temporary 
entry 

in foreign countries. 

We are working with U.S. companies to help ensure that in the next services ne- 
gotiations, our companies will have greater freedom to move these top-level, special- 
ized personnel as needs arise. 

Question 3: At the hearing a representative of the International Insurance 
Council discussed pro-competitive regulatory principles (copy attached) 
THAT his group HAS SUGGESTED. I AM INTERESTED WHETHER YOU VIEW THESE 
PRINCIPLES AS A POSSIBLE BASIS FOR DEVELOPING UNITED STATES NEGOTIATING OB- 
JECTIVES FOR THIS IMPORTANT INDUSTRY. I AM ALSO INTERESTED IN YOUR VIEWS 
ON THESE PRINCIPLES AND THE EXTENT TO WHICH YOU INTEND TO PURSUE THEM 
IN THE NEXT ROUND OF SERVICES NEGOTIATIONS. 



54 


Answer 3: 

The U.S. Trade Representative’s Office already has been giving close attention to 
these principles promoted by several representatives of the U.S. insurance commu- 
nity and has drawn from them in formulating U.S. objectives for the “GATS 2000” 
negotiations. The U.S. negotiating proposal includes major issues identified by the 
U.S. financial services industry, such as improving market access and national 
treatment; promoting transparency and fairness of domestic regulatory regimes, 
with appropriate regard for the prudential clause; and review of whether existing 
definitions include all important commercial activities. Like many in industry, the 
U.S. believes that these issues have to be examined as a package to guarantee open 
and meaningful market access for financial services providers. We intend to pursue 
these issues vigorously and through the use of all possible negotiating approaches 
in the upcoming round of services negotiations. 


That is Mr. John Pepper, Chairman of Procter & Gamble in Cin- 
cinnati and Chairman also of the President’s Advisory Committee 
on Trade Policy and Negotiations; Ernest Micek, Chairman, 
Cargill, Inc., Minneapolis, on behalf of the Emergency Committee 
for American Trade; Dean O’Hare, President and chief executive of- 
ficer, Chubb Corp. and Chairman of the Coalition of Service Indus- 
tries; Dean Kleckner, President of the American Farm Bureau Fed- 
eration; John Dillon, chairman of the board and chief executive offi- 
cer, International Paper Co.; Mark Van Putten, President and chief 
executive officer. National Wildlife Federation. 

And let me apologize to all of you gentlemen for the kind of cha- 
otic day we are experiencing. As you sit down here, we are in the 
midst of our tax bill on the floor, which is kind of a hot topic, and 
that accounts for many of our Members being tied up over there 
during the debate. But the other thing is I realized as some of you 
have tight time constraints, and so for everyone’s benefit, if you are 
on a tight time constraint or you have flights to catch, at any time, 
excuse yourself, and we understand your situation, too. 

And now I would like to yield to my distinguished colleague, Mr. 
Portman, first, to welcome Mr. Pepper, his constituent. 

Mr. Portman. Thank you, Mr. Chairman. I will be brief just to 
welcome John Pepper, who has been a voice of reason on free trade, 
and has not only done this, Mr. Chairman, in terms of policy over 
the years, being one of the leading advocates of explaining the ben- 
efits of free trade and did it through business practices, but also 
in the last 30 years deeply involved in our community back home. 
He has a passion for youth and helping them, as shown through 
his work in education and antidrug efforts — he is on the board of 
the Coalition for a Drug-Free Cincinnati with me — and his work on 
racial cooperation and dialog. And I welcome him this morning — 
this afternoon, now, and look forward to his testimony. 

Chairman Crane. And next I would like to yield to our distin- 
guished colleague from Minneapolis, Mr. Ramstad, to welcome his 
constituent Mr. Micek. 

Mr. Ramstad. Thank you, Mr. Chairman. I will be brief. It is a 
pleasure to extend a special welcome to my good friend Ernie 
Micek, chairman of Cargill and also chairman of the Emergency 
Committee for American Trade, ECAT. 

I want to thank you again, Ernie, for appearing once again before 
the Subcommittee, and for your important leadership in helping us 
knock down tariff and nontariff barriers to USA exports. Nobody 



55 


has been a better corporate citizen than Cargill, not only in Min- 
nesota, but worldwide, and nobody has been a more impressive, 
more committed chief executive officer than you have. So thank you 
for all that you are doing and for your leadership, and welcome 
again to the Subcommittee. 

Chairman Crane. And I would just like to ask one question, be- 
cause I heard a rumor, Mr. Kleckner. I know you are from Park 
Ridge. Is it true that Hillary Clinton used to babysit you when you 
were a toddler? 

Mr. Kleckner. I don’t know, Mr. Chairman. She did go to school 
in Park Ridge, and as I look out my office window, I look down the 
street to where she was born and raised just two blocks away. 

Chairman Crane. John Wayne Gacy another two blocks. They 
are both from Henry Hyde’s district. That is why I raised the ques- 
tion, because it is right next door to me. 

Mr. Levin. I have nobody to introduce. 

Chairman Crane. Now, gentlemen, if you will proceed in the 
order that I introduced you on the schedule here. 

Mr. Pepper. 

STATEMENT OF JOHN E. PEPPER, CHAIRMAN, PROCTER & 

GAMBLE COMPANY, CINCINNATI, OHIO, AND CHAIRMAN, 

PRESIDENT’S ADVISORY COMMITTEE ON TRADE POLICY 

AND NEGOTIATIONS 

Mr. Pepper. Thank you, Mr. Chairman. And thank you, Rob. 

As the Chairman indicated, I appear here today as the Chairman 
of the President’s Advisory Committee on Trade Policy and Nego- 
tiations, ACTPN as we call it. I accepted this role a year ago be- 
cause I feel very strongly that forging a consensus and taking ac- 
tion to take greater advantage of trade liberalization is critical to 
this country’s future, is critical to the growth of the economy and 
the growth of jobs. We all know the importance of the WTO Min- 
isterial that is coming up in terms of furthering trade liberaliza- 
tion. 

My convictions on this for years have rested on two simple 
things: One, we have got far lower tariffs and lower barriers than 
anybody else, and if we can get other people down to our area, it 
is going to help us greatly, and if we don’t, we are going to suffer, 
as we are suffering right now, for example, as Chile’s 11 percent 
duty is being reduced for Mexico and Canada and not for us; as we 
see an increasing amount of trade between Brazil and Argentina 
that we are not taking part of because of MERCOSUR. 

And the other fundamental here, of course, is that the over- 
whelming part of this world’s population lies outside of this coun- 
try, and we need to ship more products to it, and we can if we have 
a level playingfield. 

As we went into ACTPN this year, and recognizing the WTO, we 
decided we would focus 100 percent of our time on advising 
Charlene Barshefsky and Sue Esserman on that agenda. We will 
comment today on three of those aspects: Market access, particu- 
larly agriculture; the new economy, particularly e-commerce; and 
the role of trade and labor. You will hear from Dean Kleckner and 
Dean O’Hare on two of those. I will be brief. 



56 


On market access, as 60 percent of the world trade will soon be 
covered by regional free trade and customs union agreements, 
ACTPN supports a bold initiative to bring those efforts into the 
WTO. We also support a broad market access package. Tariff and 
nontariff barriers in all industrials should be dramatically reduced 
and export subsidies eliminated. 

There is no more important element in the next WTO Round 
then Agriculture. Dean will talk to that. I would just highlight here 
the particular focus we have brought to the issue of biotechnology. 
The USTR’s goal is to ensure that access to new agricultural tech- 
nologies, specifically GMOs, genetically modified organisms, are not 
restricted by protectionism and unfounded fear. And this rep- 
resents a huge risk to U.S. agriculture, indeed to the world’s popu- 
lations. 

While there is, I can tell you, general agreement among the 
ACTPN members not to reopen the current sanitary and 
phytosanitary standards, and we think that is very important. 
There is a working group that has been charged with defining the 
issues in SPS that present problems to some of our members and 
determine how these problems could be addressed. Dean will talk 
about that in a minute. 

The ACTPN Services Working Croup has urged USTR to adopt 
broad liberalization and market access in a range of sectors, includ- 
ing audiovisual services, telecommunications, travel, tourism and 
others. We have recommended to the USTR that they adopt a neg- 
ative list schedule as the most effective negotiating strategy. Dean 
O’Hare, CEO of the Chubb Corp. and a member of ACTPN, will 
comment on this in a moment. 

We spent a lot of time in the last 9 months on the subject of the 
new economy, and particularly e-commerce. We have concluded 
that especially since e-commerce is in its infancy, governments 
must resist the urge to regulate or impose tariffs or nontariff bar- 
riers. Clearly avoidance of harm should be the guidance here, 
avoidance of mischief. We should allow technology to follow market 
forces as it matures. 

The evaluation of e-commerce in the last year has led our mem- 
bers to recognize that e-commerce is only one element of an incred- 
ibly fundamental change in the global economy, that of IT, informa- 
tion technology. Internet usage is doubling every 100 days. Com- 
puters’ power is doubling every 18 months. By 2006, one-half of the 
U.S. work force will be employed in industries that are either 
major producers or users of IT products. IT growth is already 
stretching existing trade agreements, and it is going to raise many 
new unforeseen issues. 

Make no mistake, this is an area where the United States is 
leading. IT as a percentage of gross domestic product is 5.3 percent 
in this country compared to 2.9 percent in Europe. Eortunately, 
Lew Gerstner of IBM has agreed to chair an ACTPN task force on 
IT which will deal with this rapidly changing technology and make 
appropriate recommendations for policy not just for the WTO, but 
on a continuing basis. 

Charlene Barshefsky has asked that an IT task force consider 
presenting an education forum for the trade ministers on IT issues 
in Seattle. We think that is a good idea. 



57 


A priority without consensus right now in ACTPN is the con- 
troversial role of labor and trade. In Procter & Gamble we refer to 
controversial issues like this as “mooses on the table.” They are 
issues that people are reluctant to deal with head on, that they 
tend to talk past each other on and where there are legitimate 
competing agendas. 

ACTPN members John Sweeney and Tom Donahue of the Cham- 
ber of Commerce have agreed to lead the examination of conflicts 
that have often arisen between labor leadership and the advocates 
of trade liberalization. They will be presenting their conclusions at 
our September 28 ACTPN meeting. We are hopeful that there will 
be common ground that we can find on some issues such as the 
elimination of forced labor, exploitive child labor, respect for ILO 
labor standards and the importance of transparency in the resolu- 
tion agreements. 

Finally, I would simply note that there has been heavy emphasis 
in the ACTPN on what has been stressed here by you gentlemen 
today, the importance of assuring compliance and accountability 
with agreements and with resolution rulings. If the WTO is not de- 
livering on what it has agreed, we have a failed system. And I 
would assure you that in our discussions, the energy we have seen 
around this from Sue Esserman and Charlene Barshefsky has been 
intense. 

In conclusion, let me just express my conviction here that each 
one of us must take ownership of this if we are to be successful in 
Seattle and take advantage of the enormous opportunities that this 
country has through a successful round. P&G along with 140 orga- 
nizations have formed the U.S. Alliance for Trade Expansion, a co- 
alition to bring together a lot of different efforts to promote the 
benefits of a rule-based trading system for all Americans. 

As Members of the Trade Subcommittee, I would respectfully 
suggest that each of you has a vital role to play. Your education 
of other Members as well as your constituents about the impor- 
tance of the ministerial and free trade certainly must go alongside 
what we in industry do to tell our members about its importance. 
I cannot imagine a higher stakes issue than what we are talking 
about here or a higher stakes event than the WTO Ministerial. 
Thank you very much. 

Chairman Crane. Thank you, Mr. Pepper. 

[The prepared statement follows:] 

Statement of John E. Pepper, Chairman, Procter & Gamble Company, Cin- 
cinnati, Ohio, and Chairman, President’s Advisory Committee on Trade 

Policy and Negotiations 

Mr. Chairman and distinguished members of the Trade Subcommittee, I am John 
E. Pepper, Chairman of The Procter & Gamble Company. I appear today as Chair- 
man of the President’s Advisory Committee on Trade Policy and Negotiations 
(ACTPN). 

This is an organization that was created by the Trade Act of 1974. It consists of 
approximately 45 members who are appointed by the President and represent busi- 
ness, labor, industry, agriculture, services, retailers, environment and consumer in- 
terests. The ACTPN is charged with advising the President and USTR on trade 
matters. 

Let me begin by saying that I accepted the role as Chairman of ACTPN because 
I feel passionately that unless the U.S. sets an example by forging a consensus on 
many of the controversial issues related to trade policy, this country will jeopardize 
its role as a global leader. While the views of our ACTPN members on specific com- 
ponents of the negotiating objectives for the WTO Ministerial are diverse, we are 



58 


all in agreement that the U.S. has a unique opportunity to provide leadership in 
bringing together the 133 representatives of the WTO member countries. Success 
will bring enormous benefits to the world economy. Failure would be a blow to our 
common prosperity. We must not let that happen. 

As host of the WTO Ministerial, the U.S. plays a key role in establishing the 
agenda for trade liberalization over the next decade. Why is this important? Over 
one-third of U.S. economic growth since 1992 has resulted from trade. Americans 
by nature believe in playing by the rules. If we can bring those rules to the rest 
of the world and establish a level playing field, U.S. companies will be able to send 
our products to other countries and make our strong economy even stronger. If not, 
American firms and workers will be placed at a competitive disadvantage. ACTPN 
members are concerned that our trading partners are concluding preferential trade 
agreements without us. Already, Chile’s 11% tariff is being reduced unilaterally for 
both Mexico and Canada, but not for the U.S. MERCOSUR countries are progres- 
sively eliminating tariff rates among member countries. Virtually all trade between 
Brazil and Argentina now enjoys a duty-free status. With 95% of the world’s popu- 
lation living outside the U.S., the vast majority of growth potential for American in- 
dustry — growth that provides American jobs — comes not from the U.S., but the rest 
of the world. 

To support our U.S. negotiators in the challenges confronting them at Seattle, 
Ambassador Barshefsky has engaged the ACTPN in three key areas — market ac- 
cess, the new economy, and the role of trade and labor. I’d like to briefly comment 
on our policy recommendations in these areas. 

Market Access 

As 60% of world trade will soon be covered by regional free trade and customs 
union agreements, ACTPN supports a bold initiative to bring these efforts into the 
WTO. 

ACTPN also supports a broad market access package, such as that negotiated in 
the Uruguay Round. To be specific, tariff and non-tariff barriers in all industrial 
sectors should be dramatically reduced, and export subsidies eliminated. Obviously, 
we’ll continue to battle our European friends over their $60 billion in agriculture 
trade-distorting subsidies, but like Vince Lombardi, I believe “winning becomes a 
habit.” 

• Agriculture 

U.S. farmers lead the world in productivity and efficiency, sustaining our health 
and quality of life at home and aiding a hungry world abroad. As agriculture is cer- 
tain to be a key element of the next WTO Round, the ACTPN has focused our en- 
ergy on agricultural products of modern biotechnology and the U.S. Trade Agenda. 
USTR’s goal is to insure that access to new agricultural technologies is not re- 
stricted by protectionism and fear. While there was general agreement among 
ACTPN members not to reopen the current sanitary and phyto sanitary (SPS) 
standards, a working group has been charged with defining the issues in SPS that 
present problems to some of our members and determine how these problems should 
be addressed. Dean Kleckner, President of the American Farm Bureau Federation 
and a long-time member of ACTPN, will elaborate more on this in his testimony. 

• Services 

In 1998 U.S. services exports were $260.3 billion, while imports were $180.8 bil- 
lion, producing a trade in services surplus of $79.4 billion. Services comprise nearly 
30% of U.S. exports. Additionally, in 1998 U.S. service exports supported about four 
million U.S. jobs — jobs both in services and manufacturing sectors. 

The ACTPN Services Working Group urged USTR to adopt broad liberalization 
and market access in a range of sectors including, but not limited to, audio visual 
services, telecommunications, travel, tourism and others. The Working Group also 
recommended to USTR that they adopt a negative list schedule as the most effective 
negotiating strategy and one which would speed market access. Dean O’Hare, CEO 
of Chubb Corporation and a member of ACTPN, will comment in more detail on the 
services agenda. 


The New Economy 

Since 1994, the ACTPN has produced five reports on the WTO. This morning, I 
want to review the most recent report — on the subject of e-commerce — and share 
with you the context of ongoing ACTPN discussions on the “new economy” which 
is so critical to America’s future. 



59 


• E-Commerce 

At our June 10, 1999 meeting, ACTPN finalized a report led by Hewlett-Packard’s 
Lew Platt that dealt with a variety of electronic commerce issues. 

ACTPN opposes the classification of electronic commerce as a good or service. 
While it still believes that substantive regulation of electronic commerce should be 
left to the member countries and other international organizations, it advocates the 
adoption of WTO rules on transparency notification and review of domestic regula- 
tion. Our key message is, e-commerce is in its infancy and governments need to re- 
sist the urge to regulate. We should allow technology to follow market forces as it 
matures. 

• Information Technology 

ACTPN’s evaluation of e-commerce led our members to recognize that e-commerce 
is only one element of a fundamental change in the global economy — that of infor- 
mation technology (IT). 

Lew Gerstner of IBM reported to ACTPN members that computing power has 
been doubling every eighteen months for the past 30 years, with a parallel geo- 
metric decline in prices. Internet usage doubles every 100 days. By 2006 almost half 
of the U.S. work force will be employed by industries that are either major pro- 
ducers or users of IT products and services. 

IT’s explosive growth is already stretching existing trade agreements, and is cer- 
tain to raise new, unforeseen issues. And make no mistake — the U.S. is leading the 
creation of this new economy. IT spending as a percentage of GDP in the U.S. in 
1998 was 5.3%. By comparison, Europe was 2.9% and Japan was 3.5%, which is 
where the U.S. was in 1990. Our trade policy must reflect this rapidly growing glob- 
al marketplace. 

An ACTPN Task Force was established to make recommendations to USTR on 
how to ensure we remain in a leadership position to deal with this rapidly changing 
technology. I’m pleased to report that Lew Gerstner has agreed to chair this impor- 
tant effort. 

Charlene Barshefsky has also requested that the IT Task Force consider pre- 
senting educational forums for trade ministers on IT issues at Seattle. I personally 
think this is a terrific idea and a meaningful role for ACTPN to play at the Ministe- 
rial. 


Trade & Labor 

A priority for which there is no consensus in ACTPN, but one that must be ad- 
dressed if we are to make progress in trade policy, is the controversial role of labor 
and trade. In Procter & Gamble, we refer to controversial issues as “moose on 
table.” These are issues that no one wants to deal with head on as there are always 
competing agendas. Unfortunately, unless leadership focuses on the moose, these 
issues never get resolved. ACTPN members, John Sweeney of the AFL-CIO and 
Tom Donahue of the COC have assumed leadership for our group in clarifying trade 
and labor issues and in establishing a framework for resolving these concerns 
through U.S. trade policy. Their goal is to present issues upon which there is and 
is not agreement at our September 28, 1999, ACTPN Meeting. I remain hopeful that 
there will be some areas of mutual agreement and progress. Global growth can and 
should be accompanied by safer workplaces, elimination of forced labor and 
exploitive child labor and respect for core labor standards. The WTO, in particular, 
can work in more coordination with the International Labor Organization on some 
of these issues. While developing countries are expected to argue against inclusion 
of any work on trade and labor in the WTO, our U.S. negotiators have a unique 
opportunity to deliver results in this important area. 

Conclusion 

In conclusion, let me say that each of us here today must assume ownership if 
the U.S. is to be successful in Seattle. My Company, Procter & Gamble, along with 
the Coalition of Service Industries, the American Farm Bureau Federation, and over 
140 other organizations, have led the formation of the U.S. Alliance for Trade Ex- 
pansion. The mission of this coalition is to promote the benefits of a rules-based 
trading system for all Americans and support U.S. Leadership at the Seattle Min- 
isterial. 

As Members of the Trade Subcommittee, each of you also has a vital role to play 
at the WTO. Your education of other Members of Congress and your own constitu- 
ents about the importance of the Ministerial and what it means to the future of this 
great country is paramount. Congress as a whole must build on their recent trade 



60 


successes including passage of the Africa Growth and Opportunity Act, CBI, China 
NTR and Vietnam NTR. Bipartisan support for GSP renewal and permanent NTR 
for China (if an agreement is reached) should follow. We must support our U.S. ne- 
gotiators. They will be working around the clock to build a better future for you, 
me and for our children. 

Tom Friedman writes in his book. The Lexus and the Olive Tree, that globalization 
is everything and its opposite. We are a nation that is not afraid to go to the moon, 
but also still loves to come home for Little League. We are a nation that invented 
both cyberspace and the backyard barbecue. We can never take this for granted. For 
globalization to be sustainable, America must be at its best — today, tomorrow, all 
the time. That is our challenge and our responsibility. 

Thank you. 


Chairman Crane. Mr. Micek. 

STATEMENT OF ERNEST S. MICEK, CHAIRMAN, CARGILL, IN- 
CORPORATED, MINNEAPOLIS, MINNESOTA, AND CHAIRMAN, 

THE EMERGENCY COMMITTEE FOR AMERICAN TRADE 

Mr. Micek. Thank you, Mr. Chairman. I am testifying today be- 
fore the Trade Subcommittee as Chairman of the Emergency Com- 
mittee for American Trade, which is comprised of the heads of 
major American companies with global operations who represent 
all principal sectors of the U.S. economy. 

ECAT believes that in order to have a successful Seattle WTO 
Ministerial, the focus of the meeting must be kept on the launch 
of a new comprehensive round of trade negotiations. These negotia- 
tions should enhance market access for the industrial, agricultural 
and service sectors, and ensure that WTO rules accomodate the de- 
velopment of new technologies key to the U.S. economic growth in 
the 21st century. 

While building a positive trade-expanding agenda for the min- 
isterial and a new round is critical, we will not be successful with 
that agenda here at home unless we also build a consensus in sup- 
port of trade expansion among American workers and their fami- 
lies. This means that we must demonstrate how trade liberaliza- 
tion improves the lives of Americans and helps all economies meet 
basic human needs. 

ECAT believes that one way to increase trade’s contribution to 
human well-being is to make eliminating barriers to trade in food 
a central negotiating objective in the agenda coming from the Se- 
attle Ministerial. 

Toward this end, ECAT is launching a Food Chain Coalition. The 
coalition will promote the reduction or elimination of major bar- 
riers to trade at all levels of the food production and distribution 
chain. Putting food prominently among negotiating priorities will 
increase food security, accelerate economic development, and pro- 
mote a sustainable environment. This new paradigm also can help 
to achieve the critical consensus necessary to support open trade 
policies. 

Before outlining our specific Food Chain Coalition proposal, I will 
briefly discuss ECAT’s overall recommendations for the Seattle 
WTO Ministerial agenda and new WTO Round. 

The United States must take the lead in crafting an agenda for 
the WTO Ministerial and for a new round that is focused on trade 
liberalization. The agenda must avoid globally divisive issues such 



61 


as nontrade-related labor or environmental matters or competition 
policy on which there is not yet a broad-based consensus within the 
WTO. 

The United States needs to recognize the ways in which trade 
liberalization contributes to resolving some of these problems and 
to building consensus for cooperation. For example, the elimination 
of barriers to food trade that ECAT is proposing also yields envi- 
ronmental benefits by encouraging agricultural practices that pro- 
mote production in advantaged areas while lessening demands on 
environmentally fragile lands. 

In order to provide a positive foundation for continuing liberal- 
ization in a WTO new round, ECAT believes that the United States 
should urge that WTO members adopt a standstill commitment on 
trade-restrictive measures at the ministerial. The ministerial agen- 
da also should include a renewed effort to broaden WTO member- 
ship to include those emerging economies that are not yet subject 
to WTO rules, particularly China. 

In order to ensure that the new WTO Round negotiations pro- 
mote trade expansion, ECAT recommends that the formulation of 
the agenda be guided by the following general principles: 

One, the focus of the negotiations should be trade liberalization. 
A new round agenda should be as comprehensive as possible. All 
WTO members should be required to adhere to new round agree- 
ments once they are finalized. A new round should be completed 
expeditiously according to an agreed-on timetable. 

The United States should seek maximum liberalization through 
improved market access with as few exceptions as possible. New 
round negotiations should not weaken existing WTO agreements or 
create opportunities for the imposition of new trade restrictive 
measures. A new round should also promote full implementation 
and compliance with existing WTO agreements. 

Trade liberalization objectives that address basic human needs 
should be a focus of the WTO negotiations. ECAT believes that 
these principles, which are set out in greater detail in our written 
statement, can effectively guide the formulation of U.S. objectives 
for a new round. 

ECAT has formed a Food Chain Coalition to promote the elimi- 
nation of major barriers to food trade affecting the agricultural, 
manufacturing, and service sectors within the WTO. There are sev- 
eral reasons ECAT has chosen to take this unusual step. First, 
ECAT has learned from its trade education focus group research 
that supporters of global trade expansion must demonstrate the 
importance of trade to the daily lives of American workers and 
their families to enjoy their support for liberalization. One of the 
most compelling ways that we can emphasize the human dimen- 
sion of global trade liberalization is by eliminating barriers to food 
trade. 

Second, the Food Trade Coalition can build on the momentum 
within APEC for an open food system by extending its trade liber- 
alization objectives to the WTO. 

Third, the Food Chain Coalition captures the growing interest in 
agrifood trade liberalization. That interest extends well beyond 
farmers to people who supply them with seed, chemicals, fertilizer 
equipment and capital. It also applies to those who handle, trans- 



62 


port, process, finance, and market food products. By using the 
elimination of barriers to trade and investment at all levels of the 
food chain as an organizing principle, the Food Chain Coalition 
seeks to create cross-sectoral alliances in support of common nego- 
tiating priorities. These priorities include eliminating export sub- 
sidies, zeroing out tariffs and eliminating investment restrictions. 

Focusing on the shared interests in economic development and 
liberalization enables businesses and governments to build a new 
set of alliances and common interests. This will increase the poten- 
tial for success in new round negotiations. In terms of the new 
WTO new round, the coalition urges the United States to seek zero- 
for-zero tariff harmonization on agrifood products wherever pos- 
sible and on related industrial products such as engines and engine 
systems. 

In conclusion, ECAT, looks forward to continuing to work with 
you, Mr. Chairman, and other Trade Subcommittee Members on 
negotiating objectives for the new round, and in particular, our 
Food Chain Coalition project. I appreciate the opportunity to 
present our views. Thank you very much. 

[The prepared statement follows:] 

Statement of Ernest S. Micek, Chairman, Cargill, Ineorporated, Min- 
neapolis, Minnesota, and Chairman, Emergency Committee for American 
Trade 


Introduction 

I am Ernie Micek, Chairman of Cargill, Incorporated. Cargill is a privately held 
agribusiness company founded over 130 years ago in Iowa. Today the company is 
headquartered in Minneapolis, Minnesota, and our 80,000 employees are engaged 
in marketing, processing, and distributing agricultural, food, financial, and indus- 
trial commodities throughout the world. 

I am testifying before the Trade Subcommittee today as Chairman of the Emer- 
gency Committee for American Trade, comprised of the heads of major American 
companies with global operations who represent all principal sectors of the U.S. 
economy. The annual sales of ECAT companies total over one trillion dollars, and 
the companies employ approximately four million men and women. 

ECAT believes that in order to have a successful Seattle WTO ministerial the 
focus of the meeting must be kept on trade expansion through the launching of a 
new, comprehensive round of trade negotiations. The ministerial should lay out an 
agenda for the new round that enhances market access for traditional industrial and 
agricultural products, while accommodating WTO rules to the development of new 
technologies that will be key to U.S. economic growth in the twenty-first century, 
such as biotechnology and electronic or e-commerce. The agenda also should 
strengthen the rules of the global trading system. 

While building a positive, trade-expanding agenda for the ministerial and the new 
round are critical, we will not be successful with that agenda here at home unless 
we also maintain our efforts to build a consensus in support of trade expansion 
among American workers and their families. This means that we must make the 
case that trade liberalization improves the lives of American workers and their fam- 
ilies and helps all economies meet basic human needs. 

ECAT believes that one way to increase trade’s contribution to human well-being 
is to make eliminating barriers to trade in food a central negotiating objective in 
the agenda coming forth from the Seattle ministerial. Toward this end, ECAT is 
launching a “Food Chain Coalition” that will promote the reduction or elimination 
of major barriers to trade at all levels of the food production and distribution chain. 
Putting food prominently among negotiating priorities will increase food security, 
accelerate economic development, and promote a sustainable environment. This new 
paradigm also can help to achieve the critical consensus necessary to support open 
trade policies. 

The ECAT food chain concept builds on the idea of an open food system that has 
gained support within the Asia Pacific Economic Council (APEC) and extends it to 
the WTO. A study by the U.S. Department of Agriculture has concluded that two- 



63 


thirds of the welfare gains from trade liberalization within APEC comes from the 
agri-food sector alone. Given the many global distortions to agri-food trade, there 
are similar benefits to come from an “open food” initiative within the WTO. 

Before outlining our specific Food Chain Coalition proposal, I will present ECAT’s 
recommendations for the Seattle WTO ministerial agenda and new WTO round. 

Launching a New Trade Round at the Seattle WTO Ministerial Seattle WTO 

Ministerial Objectives 

As we approach the millennium, we must ensure that U.S. trade and investment 
remain the powerful engines of economic growth that have helped to produce the 
longest period of peacetime economic expansion in American history and the lowest 
unemployment rate in 30 years. With 96 percent of the world’s customers outside 
of the United States, the future growth of the American economy depends on ex- 
panding world markets. Just as ECAT member companies recognize that they must 
be global firms to thrive, the United States must maintain its preeminence as a 
global economy to continue to prosper into the next century. 

To accomplish this, the United States must take the lead in crafting an agenda 
for the Seattle WTO ministerial and for a new round that is focused on trade liber- 
alization. That agenda should avoid globally divisive issues, such as non-trade-re- 
lated labor or environment matters or competition policy, on which there is not yet 
a broad-based consensus within the WTO. That is not to say that these issues are 
unimportant. It is merely to recognize that, if contentious issues dominate the min- 
isterial, confidence in the global trading system and U.S. leadership will be under- 
mined. 

The United States needs to recognize and articulate the ways in which trade lib- 
eralization contributes to resolving some of these problems and to building con- 
sensus for cooperation. For example, the elimination of trade-distorting agricultural 
subsidies and the reduction of tariffs on environmental goods and services reduce 
harm to the environment, while speeding the spread of technologies that enable 
countries to be efficient and to be environmental stewards. The elimination of bar- 
riers to food trade that ECAT is proposing also yields environmental benefits by en- 
couraging agricultural practices that promote production in advantaged areas while 
lessening demands on environmentally fragile lands. On labor issues, the United 
States is pursuing an appropriate course in increasing its support for the ILO and 
focusing its efforts to achieve a forum on global labor issues within that organiza- 
tion. 

ECAT also has some other specific recommendations for the ministerial. The 
United States could help in maintaining an open and transparent economy by urg- 
ing that WTO members adopt a standstill commitment on trade-restrictive meas- 
ures. Such a commitment would safeguard the liberalization achieved under the 
Uruguay Round and subsequent sectoral negotiations while preventing backsliding. 
It also would provide a positive foundation for continuing liberalization in the con- 
text of a new round. As the largest and most open economy in the world, the United 
States is in the best position to call for such a commitment. Indeed, the WTO Secre- 
tariat, in a recent highly laudatory report on U.S. trade policies, noted the critical 
role that the United States plays in serving as a positive role model for other WTO 
member countries by maintaining open markets. It also cited the key role of the 
United States in helping to restore global economic stability in the wake of the 
Asian financial crisis and the breakdown of the Russian economy. 

To be successful, the ministerial agenda also should include a renewed effort to 
broaden WTO membership to include those emerging economies that are not yet 
subject to WTO rules. China, the largest emerging economy in the world, must be 
brought into the multilateral trading system. Its admission to the WTO on the basis 
of a commercially-acceptable protocol of accession should be given top priority. The 
high degree of financial instability in Asia and the slowdown in the global economy 
make it more critical than ever that China become subject to WTO rules and a par- 
ticipant in liberalization initiatives. 

Reaching an agreement on sectoral market-access initiatives, such as the negotia- 
tions on the eight sectors covered under the Accelerated Tariff Liberalization (ATL) 
negotiations, at the time of the ministerial would help to make it a success and 
would provide momentum for even broader liberalization negotiations in a new 
round. ECAT particularly supports efforts under the ATL initiative to eliminate tar- 
iffs on chemicals, toys, medical equipment and scientific instruments, and forestry 
products. Similarly, progress at the ministerial in negotiations to remove non-tariff 
barriers in the information technology sector is important and would also promote 
a successful meeting. 



64 


U.S. business has a significant role to play in ensuring the success of the ministe- 
rial by encouraging the adoption of a positive agenda and making the case for the 
contributions of the WTO in continuing trade liberalization. ECAT supports the 
work of the Alliance for U.S. Trade, an ad hoc coalition of U.S. business associations 
and companies that is coordinating business support for ministerial activities, and 
similar efforts by other groups. 

A WTO ministerial that produces a trade-expanding agenda backed by consensus 
will send a strong signal to global markets about the strength and vitality of the 
open trading system. A ministerial that endorses an expansion of the open trading 
system will encourage emerging economies to stay the course on trade liberalization. 
Success in advancing a trade-liberalizing agenda at the Seattle meeting will help 
to reinforce U.S. domestic support for the WTO by demonstrating that the WTO con- 
tinues to advance American interests in promoting greater market access for U.S. 
goods, services, and agriculture. A clearly articulated trade liberalizing agenda also 
will build support for renewal of trade-negotiating authority. 

The WTO New Round Agenda 

In order to ensure that the new WTO round negotiations promote trade expan- 
sion, ECAT recommends that the formulation of the agenda be guided by the fol- 
lowing principles: 

• The focus of the negotiations should be trade liberalization. Progress on non- 
trade related labor and environmental issues should be pursued in other appro- 
priate international fora. 

• A new round agenda should be as comprehensive as possible in order to gen- 
erate the greatest interest among WTO member countries and to maximize the op- 
portunity for liberalization. A round should encompass the built-in agenda of agri- 
culture and services, as well as industrial tariffs, customs facilitation, transparency 
in government procurement, and other new areas. However, the agenda should not 
open areas on which there is little consensus or likelihood of progress. 

• In keeping with the legal framework of the multilateral WTO agreements, all 
WTO members should be required to adhere to new round agreements once they are 
finalized. 

• A new round should be completed expeditiously according to an agreed time- 
table. Consideration should be given to allowing for provisional implementation of 
agreements concluded in advance of the agreed deadline but with leverage retained 
to ensure that progress is made across all areas, including difficult ones. 

• The United States should seek meiximum liberalization in market-access nego- 
tiations with bound reductions in tariff and non-tariff barriers to agricultural and 
industrial products and in the services sector, with as few exceptions as possible. 
The negotiations on industrial products should cover as many sectors as possible. 

• New round negotiations should not weaken existing WTO agreements or create 
opportunities for the imposition of new trade-restrictive measures or discriminatory 
treatment, particularly with respect to new areas such as biotechnology and e-com- 
merce. 

• A new round should promote full implementation of and compliance with exist- 
ing WTO agreements. WTO members should consider the provision of additional 
technical assistance to developing countries to promote this goal. 

• The United States should align U.S. negotiating objectives with promoting high- 
er U.S. and global living standards. Trade liberalization objectives that address 
basic human needs should be a focus of the WTO negotiations. 

ECAT believes that these principles can effectively guide the formulation of U.S. 
objectives for a new round and can help maximize the benefits of the negotiations 
to the U.S. agricultural, manufacturing, and services sectors. ECAT’s views on the 
major areas that should be included in a new round are provided below. 

Agriculture 

The agriculture negotiations should aim to secure substantial, progressive reduc- 
tions in support and protection, including deep cuts in bound tariff rates and the 
elimination of export subsidies. Negotiations should reduce average tariff bindings 
over six years by 50 percent from current levels. Tariff peaks should be reduced to 
levels that will not prohibit imports. Negotiations should clarify that tariff-rate 
quotas are transitional measures and provide for their phase-out. Sectoral zero-for- 
zero tariff agreements should also be encouraged. 

The agriculture negotiations should seek further reductions in trade-distorting do- 
mestic supports, both by reducing support levels and by shifting to less trade-dis- 
torting support mechanisms. The United States also should seek to eliminate the 



65 


monopoly control of state-trading entities (STEs) and strengthen WTO rules to en- 
sure that agricultural trade is conducted on commercial terms. 

As outlined in greater detail in the section of our testimony describing our Food 
Chain Coalition proposal, ECAT believes that the Seattle ministerial declaration 
should build on the initiative being developed within APEC and establish a global 
“open food system.” To this end, the ministerial declaration should include language 
establishing a “WTO Working Party on the Creation of an Open Food System.” 

General Agreement on Trade in Services (GATS) 

The United States should pursue new negotiations to liberalize trade in services, 
particularly financial services, as part of a new round. The negotiations should seek 
to broaden and deepen the liberalization commitments under the GATS. Further lib- 
eralization of services trade will enhance global growth, assist developing countries 
in obtaining the necessary infrastructure to sustain development, and help restore 
investor confidence in global markets. 

The services negotiations should also include a review of regulatory regimes in 
order to promote the creation of transparent, impartial, and pro-competitive regu- 
latory regimes in local markets. The creation of such regimes is essential to make 
the Gats national treatment and market-access commitments meaningful. 

In seeking expanded liberalization commitments, the United States should aim to 
limit reservations to the greatest degree possible. In particular, it should seek com- 
mitments to ensure national treatment and the right of establishment, eliminate re- 
strictions on cross-border transactions, promote pro-competitive regulatory reform, 
and remove obstacles to the free movement of business personnel. 

Market-Access Negotiations 

A new round should include market-access negotiations to remove tariff and non- 
tariff barriers in a wide range of industrial sectors. The tariff negotiations on indus- 
trial products should include new zero-for-zero tariff initiatives on small engines 
and other industrial products. The negotiations should also seek the elimination of 
tariff peaks and so-called “nuisance” tariffs of five percent or less. 

The market-access negotiations should include efforts to achieve tariff reductions 
in the eight ATL sectors to the extent such reductions have not been finalized by 
the time of the ministerial. As was recently endorsed by the APEC Ministers, the 
market-access negotiations should cover the six additional sectors identified in 
APEC for further liberalization, particularly food products. 

Textile and apparel tariffs, which remain very high relative to other industrial 
products, also should be included in market-access negotiations, with the goal of 
seeking further reductions before the termination of textile and apparel quotas in 
2005. Finally, the negotiations should encompass efforts to broaden membership in 
the Chemical Tariff Harmonization Agreement (CTHA), with the understanding 
that no further reductions in chemical tariffs should be considered until all major 
chemical-producing nations are fully committed to the CTHA. 

Trade Facilitation 

ECAT strongly supports the inclusion of business-facilitation issues on the min- 
isterial agenda. The United States should seek a WTO agreement on trade facilita- 
tion that would encompass the adoption of a binding WTO agreement based on the 
rules contained in the International Convention on the Simplification and Harmoni- 
zation of Customs Procedures (Kyoto Convention), a work program on trade facilita- 
tion, and a commitment to simplify rules of origin. The United States should encour- 
age the WTO to focus its trade-facilitation efforts on customs procedures and advo- 
cate the establishment of a WTO working group on the harmonization and sim- 
plification of customs procedures. The United States also should support the sim- 
plification and harmonization of non-preferential rules of origin, so that they no 
longer create unnecessary trade impediments. 

TRIPs Agreement 

The United States should ensure that the full implementation of the TRIPs agree- 
ment remains a priority under the WTO built-in agenda. It should resist any effort 
by developing countries to extend the year 2000 deadline for their implementation 
of the agreement and support the provision of technical assistance to developing 
countries to facilitate implementation. It also should oppose the extension of the 
moratorium on the application of WTO dispute settlement to intellectual property 
cases in which there is no direct violation of the TRIPs agreement. 

The United States should oppose efforts to expand Article 27.3 of the TRIPs 
agreement, which provides that WTO members may deny the patentability of cer- 
tain plants and animals. Under the WTO built-in agenda, this provision is to be re- 



66 


viewed four years after the date of entry into force of the WTO agreement. The re- 
view was originally intended to provide the opportunity to eliminate or narrow the 
exclusion. Some WTO members are now advocating that the review be used as the 
occasion to broaden the exception based on concerns about the increasing use of bio- 
technology in agriculture and other areas. While the United States may not now be 
able to succeed in eliminating the exception, it should nonetheless continue to op- 
pose any expansion of the exclusion. 

ECAT also believes that strict enforcement of the TRIPs agreement should remain 
a priority, particularly in the areas of piracy of computer software, music CDs, and 
violations of the trademarks of U.S. -branded products such as apparel. 

Government Procurement 

ECAT supports U.S. efforts to bring more countries into the WTO Procurement 
Agreement, to broaden its coverage, and to negotiate an agreement on transparency 
in procurement. The United States should seek to conclude an agreement on trans- 
parency by the time of the ministerial. It should include requirements regarding the 
transparency of procurement laws and regulations, adequate notice of bidding op- 
portunities, use of objective criteria in preparing bid specifications and in evaluating 
bids, adequate dispute settlement, and WTO notification of preference levels. 

The transparency provisions of the Government Procurement Agreement should 
be harmonized with the text of a new transparency agreement. 

Sanitary and Phytosanitary Standards (SPS) Agreement 

The Uruguay Round produced a strong agreement on sanitary and ph 3 dosanitary 
standards that requires such standards be based on sound science. This agreement 
should be rigorously enforced and should not be reopened in the course of new round 
negotiations. The WTO rules should continue to require that governments base reg- 
ulations on the best scientific information available and not impose an unattainable 
“zero-risk” standard. The United States should oppose any effort to allow SPS 
standards to be imposed on any basis other than the current sound science require- 
ment, as it would substantially weaken the agreement and create the opportunity 
for WTO members to use health and safety regulations to create new trade barriers. 

Dispute Settlement 

While the WTO dispute settlement process has overall been a strong enforcement 
mechanism for WTO rules and market-access commitments, the process can be 
strengthened. For example, procedural reforms in the areas of expediting the time- 
table for the dispute settlement panel process and implementation of panel and ap- 
pellate body reports should be considered. 

E-Commerce 

E-commerce is an increasingly important venue for international trade throughout 
all sectors of the economy. It is imperative that WTO rules address trade barriers 
and other trade-related aspects of e-commerce. ECAT believes that a top priority for 
the Seattle ministerial should be to make the current standstill regarding tariffs on 
electronic transmissions permanent. 

ECAT’s Food Chain Coalition 


Objectives 

ECAT has formed a Food Chain Coalition to promote the elimination of major bar- 
riers to food trade affecting the agricultural, manufacturing, and services sectors 
within the WTO. The Coalition has three primary objectives: 1) providing a frame- 
work for focusing on a key area in which trade liberalization meets basic human 
needs; 2) extending the trade liberalization component of the APEC Food System 
concept into the WTO; and 3) creating greater leverage to pursue improved market 
access and other goals in a new round by facilitating a cross alliance of interests 
organized around barriers to food production and distribution. There are several 
reasons ECAT has chosen to take this unusual step. 

First, ECAT has learned from its TradeWorks trade education focus group re- 
search that supporters of global trade expansion must demonstrate the importance 
of trade to the daily lives of American workers and their families to enjoy their sup- 
port for liberalization. This theme is echoed in the Administration’s call for putting 
a “human face” on trade. One of the most compelling ways that we can emphasize 
the human dimension of global trade liberalization is by eliminating barriers to food 
trade. This will make food supplies more secure, stabilize prices in world markets, 
and improve access to needed foodstuffs. 



67 


Second, the Food Chain Coalition can build on the momentum within APEC for 
an open food system by extending its trade-liberalization objectives to the WTO. The 
Information Technology Agreement and the current Accelerated Tariff Liberalization 
negotiations provide ample precedent for the incorporation of APEC initiatives into 
the WTO system. 

Third, the Food Chain Coalition expresses the broad interest in agri-food trade 
liberalization. That interest extends well beyond farmers to the people who supply 
them with seeds, chemicals, fertilizer, equipment, and capital and to those who han- 
dle, transport, process, finance, and market food products. In using the elimination 
of barriers to trade and investment at all levels of the food chain as an organizing 
principle, the Food Chain Coalition seeks to create cross-sectoral alliances in sup- 
port of common negotiating priorities, such as eliminating export subsidies, zeroing 
out tariffs, and eliminating investment restrictions. The Food Chain Coalition also 
enables business to express its shared stake in open markets. People must be well 
and reliably fed before they can become regular customers for other goods and serv- 
ices. Focusing on the shared interests in economic development and liberalization 
enables businesses and governments to build a new set of alliances and common in- 
terests that will increase the potential for success in new round negotiations. 

The Coalition covers a broad spectrum of issues — ranging from traditional agricul- 
tural tariff, quota, and, export subsidy matters to the intellectual property, regu- 
latory, labeling, and import-restriction questions raised by a new generation of bio- 
technology products. It covers agri-food products themselves, as well as equipment, 
machinery, financial services, and other inputs that go into a modern food system. 

By reaching outside the traditional core of companies and groups involved in agri- 
cultural trade issues to equipment, chemical, pharmaceutical, apparel, financial, and 
other industries that are increasingly affected by food issues, the Coalition will gar- 
ner broader domestic and international support for its priority negotiating objec- 
tives. The Food Chain Coalition also will focus attention on issues that directly af- 
fect the welfare and health of hundreds of millions of people now joining the global 
economy, thereby putting a “human face” on trade. 

Priorities for the WTO Ministerial 

The 1999 WTO ministerial provides an historic opportunity for the United States 
to shape the world trade agenda into the next century and to lay the foundation 
in particular for global liberalization of food trade. To that end, the Coalition sup- 
ports the inclusion of language in the ministerial declaration establishing a WTO 
“Working Party on the Creation of an Open Food System.” 

The Coalition would like to see the working party examine not only traditional 
liberalization initiatives, but also other issues, such as achieving food security 
through a principle of non-discrimination, that are integral to meeting the challenge 
of providing the world’s growing population affordable, abundant, nutritious, and 
environmentally sustainable food supplies. Among the novel issues to be addressed 
should be providing technical assistance to developing countries on rural develop- 
ment strategies, sanitary and phytosanitary standards issues, and the use of trade 
and financial risk tools to enhance food security. 

Priorities for the WTO New Round 

The Coalition sees this broader, more integrated strategy as critical to achieving 
its fundamental goal in this historically sensitive area — more open markets for the 
products and services involved in the production and distribution of food. In par- 
ticular, the Coalition urges the United States to seek “zero-for-zero” tariff harmoni- 
zation on agri-food products wherever possible. The Coalition also supports the initi- 
ation of “zero-for-zero” tariff negotiations on engines and engine systems and the ex- 
pansion of the existing “zero-for-zero” tariff agreements for construction and agricul- 
tural equipment to include a greater number of WTO member countries. The Coali- 
tion also believes that the elimination of agricultural export subsidies should be a 
priority in a new round. 

Conclusion 

The Trade Subcommittee’s hearing today is a vitally important part of the overall 
effort that must be made by the Administration, the Congress, and the U.S. busi- 
ness community to work together to forge a trade-expanding agenda for the Seattle 
WTO ministerial and a new WTO round. ECAT looks forward to continuing to work 
with you, Mr. Chairman, and other Trade Subcommittee members on negotiating 
objectives for the new round and in particular on our Food Chain Coalition project. 

I appreciate the opportunity to present ECAT’s views and would be happy to an- 
swer any questions subcommittee members may have. 



68 


Chairman Crane. Thank you, Mr. Micek. 

And next Mr. O’Hare. 

STATEMENT OF DEAN R. O’HARE, CHAIRMAN AND CHIEF EX- 
ECUTIVE OFFICER, CHUBB CORPORATION, WARREN, NEW 

JERSEY, AND CHAIRMAN, COALITION OF SERVICE INDUS- 
TRIES 

Mr. O’Hare. Mr. Chairman and Members of the Subcommittee, 
I am Dean O’Hare, chairman and CEO of the Chubb Corp. It is my 
pleasure to appear today in my capacity as chairman of the Coali- 
tion of Service Industries. 

We believe that the ability of the U.S. services economy to gen- 
erate new jobs and GDP depends on an aggressive trade policy that 
opens new markets for our businesses. In my own company, we 
could not maintain our U.S. employment base or survive long term 
if we were not expanding abroad. 

The U.S. nonlife-insurance market is mature, and its growth rate 
is low. We now generate almost 25 percent of our premium income 
from outside the United States, and I expect that figure to rise sub- 
stantially. 

Our experience supports the point that you cannot sell services 
to people unless you are in the local market. Our firm’s foreign op- 
erations do not cost U.S. jobs. They help to maintain our employ- 
ment base in the United States. There is no question that U.S. 
service industries are among the most competitive in the world. 
Nonetheless, we have formidable foreign corporate rivals wanting 
to clean our clock. This is why we need an aggressive U.S. trade 
policy strongly led by both the administration and Congress, and 
equally strongly supported by the business community. That policy 
should be clearly focused on trade expansion through the WTO 
across a broad range of service sectors. 

It also means that we must pursue tax policies that promote our 
competitiveness, such as the McCrery-Neal active financing bill. 

In the coming negotiations, the services sector wants free, open, 
contestable, competitive markets for its products. These conditions 
can be obtained by getting our trade partners to commit to, first, 
ensure the right of U.S. companies to establish operations in for- 
eign markets and to wholly own them. 

Second, ensure that U.S. companies receive national treatment 
so that they have the same rights as domestic companies. 

Third, promote procompetitive regulatory reform focused on ap- 
propriate and consistent rules as well as transparency and impar- 
tiality of regulatory administration. 

Fourth, remove barriers to greater cross-border trade. 

And, finally, remove obstacles to the free movement of key 
businesspersonnel and business information. 

CSI, along with a number of other organizations, has submitted 
more detailed objectives to the USTR, and I ask with your permis- 
sion, Mr. Chairman, that our submission be included in the record. 
We, and our many associated industries, will continue to work 
closely with our negotiators in defining precise negotiating goals. 



69 


Most importantly, CSI is organizing the first World Services Con- 
gress in Atlanta, November 1 through 3, to provide strong support 
for the Services 2000 negotiations. We believe that in order to com- 
plete the new round of negotiations by 2003, the content of the 
round must be manageable. We prefer a negotiation focused on the 
core items of service, agriculture, and industrial products. 

With the possibility that early agreements could be reached in 
one or more service sectors, we would like the flexibility to put 
these into force so as not to lose the economic advantages they 
would offer. 

Specific goals for the service sector include, first, extending the 
coverage of GATS commitments; second, exploring alternative inno- 
vative negotiating techniques to speed up services sector negotia- 
tions; third, pursuing procompetitive regulatory reform principles; 
and fourth, creating an open environment for the development of 
electronic commerce. 

In short, Mr. Chairman, we have a very full plate of issues press- 
ing for resolution in the new round. To achieve them, we believe 
the round must be kept short and that its content be manageable 
and achievable within a 3-year timeframe. 

Markets move too fast to give us the luxury of a decade-long ne- 
gotiation. We need greater market advice as soon as it can be nego- 
tiated. 

Thank you for the opportunity to express these views. 

Chairman Crane. Thank you, Mr. O’Hare. 

[The prepared statement and attachment follow:] 

Statement of Dean O’Hare, Chairman and Chief Exeeutive Officer, Chuhb 

Corporation, Warren, New Jersey, and Chairman, Coalition of Service In- 
dustries 

It is a pleasure to appear today to present the views of the Coalition of Service 
Industries (CSI) on US preparations for the World Trade Organization (WTO) Min- 
isterial Meeting in Seattle, specific objectives for the negotiations, and the antici- 
pated impact of a successful new round of WTO negotiations on jobs, wages, eco- 
nomic opportunity, and the future competitiveness of US service providers. 

CSI was established in 1982 to create greater public awareness of the major role 
services industries play in our national economy; promote the expansion of business 
opportunities abroad for US service companies; advocate an increased focus on liber- 
alization of trade in services in international trade negotiations; and encourage US 
leadership in obtaining a fair and competitive global marketplace. 

CSI members include an array of US service industries including the financial, 
telecommunications, professional, travel, transportation and air cargo, information 
and information technology sectors. Included in the broader coalition of sectors with 
which we work are energy services, advertising, entertainment, retail distribution, 
and education. 

CSI has been active in multilateral trade negotiations since before the Uruguay 
Round and has played an aggressive advocacy role in writing the General Agree- 
ment on Trade in Services and obtaining successful WTO negotiations in tele- 
communications and financial services. 

Today I would like to address (1) the critical importance of services and services 
trade liberalization to the US trade balance, jobs, innovation and competitiveness, 
(2) the WTO “Services 2000” negotiations as an exceptional opportunity for US serv- 
ices firms to expand their operations abroad, and (3) some recommendations for 
shaping the coming round in a way that will produce the greatest benefit for all key 
sectors of the US economy. 

Importance of Services and Services Trade to the US Economy 

Because US trade policy has in the past been dominated by concerns about trade 
in goods, it is always useful to remind policymakers about the key role services play 
now and will play in the information-based global economy. 



70 


In overall terms, the US service sector comprised 77.2 percent of US GDP, and 
78.8 percent of private sector. 


US Private-Sector Domestic Product, by Sector, 1997 



□ Services 

■ Mining & 
Agriculture 

□ Manufacturing! 


The Services sector consists of dlstrtoution, education, financial, Intellectual, property-related, teieoommunioations, 
travsi, and a broad range of business, professional, and technical services. ‘ 

Source: US Department of Commerce, Bureau of Economic Analysis 


In 1998, the US created 2.9 million net new jobs, all in the service sector, only 
slightly fewer than the 3.2 million service sector jobs created in 1997. 


U.S. Private-Sector Empioyment, by Sector, 1997 



Total f jll-time erquivalent employees = 95.4 million 

Souxe: US Department of Commerce, Bureau of Economic Analysis 


□ Services 

■ Mining and 
Agriculture 

□ Manufacturing 


The US is the world’s largest exporter and importer of services. In 1998, US serv- 
ices exports were $260.3 billion, while imports were $180.8 billion, producing a 
trade in services surplus of $79.4 billion. Services comprise nearly 30 percent of US 
exports. The US recorded a services surplus of $6.9 billion in May of this year, ex- 
porting $23.0 billion while importing $16.1 billion. 

US service industries are among the most competitive in the world. Our competi- 
tive advantage is immeasurably strengthened by the US ability to enrich our service 
products with the latest information technologies. US services companies are tech- 
nology leaders whose expertise and innovation have contributed to US productivity 
growth across a broad range of sectors. Engagement in diverse foreign markets pro- 
vides new opportunities to develop innovative services products and new tech- 
nologies. 

It is also important to remember that services are an integral component of trade 
in agricultural and manufactured products. It is up to the distribution sector to get 
goods from the seller to the buyer, up to the consumer credit sector to provide fi- 
nancing for the purchase of new goods, and up to the insurance sector to provide 
coverage for plants that manufacture everything from shoes to airplanes. These re- 
lationships make services important to the international competitiveness of many 
sectors of the US economy. 

We are entering the “Third Wave” information-based economy of the 21st Century 
as the world’s strongest competitor. This does not, however, mean that we do not 
have formidable rivals. In insurance, banking, telecommunications, transportation 
and many other fields there are strong foreign companies aching to “clean our 





71 


clock.” And, although the ready availability of information and the rapid growth of 
new technologies enhances the competitive position of our own companies, it also 
readily empowers our competitors from around the globe. 

This is why we need an aggressive US trade policy strongly led by both the Ad- 
ministration and Congress, and equally strongly supported by the business commu- 
nity. 

We need a trade policy clearly focussed on trade expansion, which means using 
the WTO and the next round to obtain meaningful liberalization. This means too, 
that we must pursue domestic teix and regulatory policies that promote the competi- 
tiveness of our companies so that they do not enter the international arena ring ear- 
ring a competitive burden of our own making. 

I would also like to point out that while U.S. trade policy has concentrated on 
opening world markets to U.S. companies, our teix policy has not always moved in 
the same direction. U.S. international tax laws are complex, cumbersome, and can 
stifle the competitiveness of U.S. companies doing business overseas. Because of 
this, international teix reform is a critical element of an effective U.S. trade policy. 

As trade policy moves into the 21 Century, it seems our international tax policy 
still reflects the business environment of the 1960’s. That is why we are encouraged 
by the recent language on teix deferral in the Financial Freedom Act and its Demo- 
cratic substitute — this is an important first step in rationalizing our US inter- 
national tax rules. CSI has championed strongly the McCrery-Neal permanent ac- 
tive financing bill and the provisions in H.R.2018, the International Tax Simplifica- 
tion for American Competitiveness Act of 1999 that provide an exception to subpart 
F for financial services active business foreign earnings. CSI would like to thank 
Chairman Archer, Congressmen Rangel, McCrery, Neal, Houghton, Levin and other 
members of the committee who are helping to secure an extension of deferral for 
America’s financial services industry; this extension will foster a more equitable and 
competitive environment for US business in the international marketplace. 

A word about jobs — US jobs. Services companies have mainly grown abroad by es- 
tablishing operations in foreign markets (in GATS parlance this is Mode 3 or “com- 
mercial presence”). This has been necessary because in most service sectors you can 
only sell and deliver services locally. Foreign operations do not cost jobs, in faet, they 
support thousands and thousands of new US jobs that wouldn’t exist otherwise. 

In my own company, for example, we could not maintain our US employment base 
or survive long-term, if we were not expanding abroad. The US non-life insurance 
market is mature and its growth rate is low. We now generate almost 25% of our 
premium income from outside the United States, and I expect that figure to rise 
substantially in the future. But, our engagement abroad not only helps our busi- 
ness — it also serves as a bridge for many of our customers to export from the US 
or invest abroad. 

Here are a few examples illustrating the stake of US service industries in ex- 
panded global markets. 

• Travel and tourism contributed over $25 billion to the services trade surplus in 
1997. This is the largest sectoral contribution to the overall services surplus. In ad- 
dition, travel and tourism are estimated to support over seven million direct jobs 
and generate roughly $71 billion in tax revenues for federal, state and local govern- 
ments. 

• Business, professional and technical services is a largely unrecognized power- 
house in American trade. In 1997, we exported more than $21 billion in these serv- 
ices and we had a $16 billion trade surplus. These data do not include the earnings 
from foreign investments and foreign affiliates, which are very substantial. Trade 
in business, professional and technical services — such as accounting, legal, engineer- 
ing, architectural and consulting services — is especially important because it fre- 
quently paves the way for trade and investment in other service and manufacturing 
sectors. 

• Telecommunications services are an integral component of operations of all 
businesses, and are essential in promoting domestic and global growth. Tele- 
communications services provide the necessary infrastructure for the development 
and continued expansion of the information society and electronic commerce. An es- 
timated $726 billion in revenue was generated in 1997, and projections for the next 
five years indicate that traded telecommunications services will increase at about 
20 percent annually for outbound calls from the US to foreign markets. 

• The information technology industry is also dependent on trade and trade ex- 
pansion. The WTO estimates that over the next five years, sales over the Internet 
will double each year. 

• The US asset management industry is the largest in the world. It is estimated 
that by 2002, 51% of total asset management revenue of $160 billion will come from 



72 


abroad, not the US. Today, US-domiciled investment managers manage 14% of the 
total of non-US retirement plan assets and 5% of non-US mutual fund assets. 

• US law firms, when billing foreign clients, produce services exports. Overall US 
legal services exports approach $1.0 billion. 

• Foreign students coming to American schools, net after scholarship and local as- 
sistance, spent $8.3 billion in the US, which is a US services export. We have a sur- 
plus in trade in education services of $7.0 billion. 

• Although few doctors imagine themselves as US exporters, medical services ren- 
dered in the US to foreign citizens produced an export surplus of $0.5 billion. 

• Air cargo transport accounts for well over a third of the value of the world trade 
in merchandise. However, restrictions on market access (including cabotage), owner- 
ship and control, the right of establishment, capacity, frequencies, intermodal oper- 
ations in connection with air services, wet leasing, customs, groundhandling, the en- 
vironment in particular local airport access times, all limit the ability of cargo car- 
riers to plan their operations purely on the basis of commercial and operational con- 
siderations. A WTO framework could provide cargo carriers with clear rules ad- 
dressing these problems and resulting in enhanced delivery options to the benefit 
of businesses, shippers and consumers worldwide. 

• Energy services have received little attention in trade negotiations to date. But 
drastic changes in the international and domestic business climate for this indus- 
try — which in the US accounts for 1.4 million jobs and about 7% of US GDP — have 
shown the need for global trading rules, which can provide new, common under- 
standings on such key matters as monopoly power, anti-competitive practices and 
discrimination against new market entrants, including of course US companies. 
Thus the energy services industry looks to the coming round as a critically impor- 
tant opportunity to map out a blueprint for market access and free competition in 
energy services. 

The challenges facing many services sectors underscore the need for strong, 
united leadership as we enter the new round. It also means we must structure this 
round to make sure it is a success. 

WTO “Services 2000” — the Opportunity We’ve Been Waiting For 

The services sector has been working toward the Services 2000 negotiations for 
20 years. First came the effort to convince governments that services — like goods — 
could be part of a trade negotiation. CSI itself was founded on the conviction that 
services firms needed a place in the multilateral trading system, and our founding 
members worked hard on behalf of the entire sector to ensure that services were 
included in the Uruguay Round. 

In the coming negotiations, services will, for the first time, take a front seat in 
the negotiations as part of the required agenda. Virtually all of the services sectors 
can be subject to negotiation in this round. With 135 member governments now par- 
ticipating in its rules-based system, and with more accessions pending, the WTO 
and its mandated “Services 2000” negotiations gives the US services industry an un- 
precedented opportunity to secure meaningful services trade liberalization from our 
trading partners. 

“Services 2000”: Goals for US Industry 

While previous negotiations have produced important liberalizations for service 
industries, all industries in the service sector face uneven implementation of past 
commitments and continued foreign impediments to open markets. 

What the services sector wants is free, open, contestable, competitive markets for 
its products. These conditions can be obtained by getting our trading partners to 
commit to: 

• Ensure the right of US companies to establish operations in foreign markets, 
including the right to wholly own these investments; 

• Ensure that US companies get “national treatment,” so that foreign investors 
have the same rights as domestic companies in a given market; 

• Promote pro-competitive regulatory reform focused on adequacy of appropriate 
and consistent rules as well as transparency and impartiality of regulatory adminis- 
tration; 

• Remove barriers to greater cross-border trade; and 

• Remove obstacles to the free movement of people and business information. 

CSI, along with a number of other organizations has submitted to the US Trade 

Representative more detailed objectives for removing trade barriers. I ask that these 
recommendations, covering 8 sectors, be included in the record of this hearing. 
These will soon be updated to include additional sections on air cargo and energy 
services. 



73 


We believe the coming negotiation should be completed by January 1, 2003. In 
terms of trade negotiations, this is short. In terms of the realities of the market- 
place, it is a long time for companies that are seeking to expand their business oper- 
ations abroad. 

To make the most of the exceptional opportunity offered by Services 2000 it is es- 
sential that the content of the broader round be manageable so that there is a rea- 
sonable chance of completing the round by 2003. This means a negotiation focussed 
on the core built-in items, like services and agriculture, plus industrial products. 
Other elements, on which there is no broadly shared consensus among the WTO 
contracting parties, like an overarching agreement on international investment and 
competition policy, should not be attempted in this short round. Resolving these 
issues in the long run may well be important and useful, but they will require a 
different negotiating framework. 

There has been a good deal of comment about the concept of the “single under- 
taking” and early harvests or early agreements. On the possibly slim chance that 
an agreement could be quickly reached in a given sector, we believe that agreement 
should be allowed to come into force before 2003. It would be unfair to require such 
an agreement be held up until the completion of the entire round; this would simply 
deny the companies in question and their workers the benefits of the new business 
opportunities the agreement would create. 

Extending the Coverage of GATS Commitments 

The most telling criticism of the GATS is the lack of commitments to liberalize. 
The new negotiations must secure commitment to national treatment, market ac- 
cess, and cross border services in as many sectors as possible. Current exceptions 
are too broad, and must be honed so only the most sensitive issues are excluded. 

The need to improve commitments to open trade in cross border services (mode 
one) and consumption abroad (mode two) is even more important if electronic com- 
merce is to achieve its full development. Electronic commerce as a technology for 
the supply of services cannot begin to reach its potential without significant new 
market-opening commitments in virtually all industry sectors. The ability to provide 
services across borders is a necessary prerequisite of the robust development of elec- 
tronic commerce. If the cross border supply of services is not enabled by commit- 
ments in modes one and two, electronic commerce will be constrained to narrow na- 
tional markets. 


Innovative Negotiating Techniques 

We strongly encourage the effort to speed up negotiations in the service sector by 
finding alternatives to the inefficient, “request/offer” method of negotiations that has 
been used to date. 

One of these would be to adopt “horizontal” agreements that would apply to all 
sectors. For example, why not ask that our trading partners commit, across the 
board, to allow foreign companies to establish business operations freely, without 
special license and to permit them to be majority owned? Exceptions to this general 
rule would be allowed, but in attempting the general rule we would be setting a 
high benchmark that would take us a long way to a successful negotiation, that 
could be completed by the 2003 deadline. 

Regulatory Reform 

Regulations are easily used to frustrate and nullify hard won market access and 
national treatment commitments. Regulatory reform that is “pro-competitive” should 
be a major focus of the new negotiations. For example, attention needs to be given 
to instances where incumbent producers have dominant positions because of out- 
dated restrictions on market entrance, product innovation, and pricing flexibility. 

CSI is intent on pursuing pro-competitive regulatory reform in sectors where it 
makes sense, such as in insurance and perhaps other financial services sectors. This 
will require WTO members to make adjustments in their regulatory regimes. These 
changes should create a transparent framework of rules that will permit markets 
to operate as freely as possible while providing necessary protections, such as ensur- 
ing the safety and soundness of financial institution. 

Creating an Open Environment for the Development of Electronic 

Commerce 

International trade in virtually all services sectors, particularly cross-border 
trade, will be conducted to an increasing extent by electronic means. Electronic com- 



74 


merce and the Internet are a new technology to facilitate trade, particularly from 
business-to-business. Our goal should be to preserve the free-est and most open ap- 
plications of these technologies to the enhancement of all forms of trade. 

We believe that the cross-border supply of services by electronic means is covered 
by existing GATS commitments. Countries’ commitments apply to transactions 
whether by digital, or traditional, forms of communication. 

We believe that at the Seattle Ministerial Meeting of the WTO, Governments 
should: 

• Make permanent the moratorium on Customs Duties on Electronic Trans- 
missions; 

• Reaffirm that existing WTO disciplines and commitments apply to electronic 
commerce; 

• Agree to refrain from enacting measures that would impede electronic com- 
merce; and 

• Agree to assess whether national measures affecting electronic commerce are 
pro-competitive, and eliminate regulations that impede it. 

Conclusion 

The coming negotiations are an important milestone. They offer the opportunity 
to move considerably beyond the status quo to make progress in opening up trade 
in all service industry sectors. As an important step toward “Services 2000,” CSI 
is organizing the first World Services Congress in Atlanta on November 1-3 of this 
year to provide strong support for the negotiations. It is important that the 2000 
negotiations not be hindered by the effort to negotiate issues that are too conten- 
tious and would make the round unmanageable. Finally, if the round is to succeed, 
it must have the full support of the Administration and the Congress. 

Coalition of Service Industries 

Response To 

Federal Register Notice of August 19, 1998 [FR Doc. 98-22279] 

Solicitation of Public Comment Regarding U.S. Preparations for the World Trade 
Organization’s Ministerial Meeting, Fourth Quarter 1999 

Introduction 

The Coalition of Service Industries, in coordination with the Air Courier Con- 
ference of America, the Information Technology Association of America, the Inter- 
national Communications Association, and the United States Council for Inter- 
national Business is pleased to submit our recommendations to the United States 
Trade Representative (USTR) pursuant to the Federal Register Notice of August 19, 
1998: Solicitation of Public Comment Regarding U.S. Preparations for the World 
Trade Organization’s Ministerial Meeting, Fourth Quarter 1999. We appreciate the 
opportunity to provide these comments and look forward to continuing to consult 
with the USTR and all involved government agencies as we work toward launching 
and a successful conclusion of the negotiations. 

Organizations which assumed primary responsibility for the initial drafting of 
specific portions of this submission are as follows: 

I. General Issues — Coalition of Service Industries 

II. Distribution — National Retail Federation 

III. Express Delivery — Air Courier Conference of America 

IV. Financial Services — Coalition of Service Industries 

V. Health Care — U.S. Council for International Business 

VI. Information Technology — Information Technology Association of America 

VII. Professional and Business-Related Services — Coalition of Service Industries 

VIII. Telecommunications — International Communications Association 

IX. Travel and Tourism — Coalition of Service Industries 

Other associations that have been involved in the process of reviewing and com- 
menting on this submission include the Air Transportation Association of America, 
the American Hotel and Motel Association, The Council of Insurance Agents and 
Brokers, the American Bar Association, the American Consulting Engineers Council, 
the American Institute of Architects, the American Institute of Certified Public Ac- 
countants, the American Insurance Association, the Consumer Bankers Association, 
the Investment Company Institute, the American Council on Life Insurance, the Na- 
tional Society for Professional Engineers, and the Securities Industry Association. 



75 


I. General Issues 

A. Importance of the Services 2000 Round 

Multilateral trade negotiations in services are complex and have had a short his- 
tory. The global trading community is only at the beginning of a process of removing 
complex barriers to free trade in services through negotiation. 

The Services 2000 Round is, therefore, a critical element in maintaining and ex- 
panding world prosperity — the first in which we can apply lessons learned about the 
structure of the GATS and the difficult specialized services negotiating process. In 
general, the overarching objective of the United States Government in the negotia- 
tions should be to both broaden and deepen the commitments made in the GATS. 
Contestable markets in every sector and in every WTO member is the ultimate goal. 

Trade liberalization through Services 2000 offers the main chance for a quantum 
leap in world prosperity. The new industrial revolution — the information revolution 
or the “Third Wave” — has made innovation and efficiency in the production of serv- 
ices integral to economic growth. Services inputs are now a central factor in com- 
petitive success in manufacturing and agriculture. Telecommunications, transpor- 
tation, finance, insurance, distribution and information services underpin all forms 
of international trade and all aspects of global economic activity. 

To maximize opportunities of Services 2000 it is essential that the format for the 
broader negotiations permits sufficient allocation of resources to the GATS negotia- 
tion and does not hamper reaching substantive agreements on services in a short 
time frame. 

We believe that the following factors should come to bear toward a successful new 
effort in services. 

• A sound basis for making substantial progress in services in the 2000 negotia- 
tions exists. Progress made in sectors such as telecommunications and financial 
services is due to the realization by developing economies that services are the basis 
for economic modernization. 

• The tumultuous financial and economic stresses of the past year will lead not 
to retrenchment, but instead will further progress toward liberalization. 

• Through several rounds of negotiations under the WTO, countries learned to ne- 
gotiate within the complex GATS framework. 

B. Structural and Negotiating Issues 

Since its conclusion in 1994 the GATS has drawn considerable criticism because 
of its complex structure which facilitates obfuscation, not liberalization. In this 
paper, we will not elaborate on the reasons for this. Instead, the primary issue for 
negotiators is whether in these negotiations the failings of the GATS architecture 
should be addressed. 

We believe the answer must be derived from the twin objectives of (1) obtaining 
maximum liberalization in (2) the shortest time. If improvements in the GATS 
structure can be made quickly and in a way that facilitates the liberalization proc- 
ess, then it is a worthwhile effort. Otherwise, trade liberalization should not be de- 
layed by a concentration of resources on structural GATS reform. In our view, GATS 
reform is secondary to liberalization. 

Classification and Dynamic Definition of Services 

The existing classification of services used in the GATS is outdated and inad- 
equate. It omits certain services and inappropriately categorizes others. It should be 
revised to reflect accurately the real structure of services industries in order to fa- 
cilitate the removal of barriers to trade in those services. We make specific rec- 
ommendations with regard to classification in the sectoral sections of this submis- 
sion. However, we feel that another useful exercise would be to review the classifica- 
tion scheme across sectors so as to rationalize the entire structure to reduce overlap 
and redundancy where appropriate. This has not been undertaken as a part of this 
submission. 

Extending the Coverage of GATS Commitments 

Apart from the issues of GATS architectural reform is the need to broaden and 
deepen the substantive commitments to liberalization made within the GATS. The 
GATS lacks, for the most part, substantive commitments. The new negotiations 
must secure broader commitments to national treatment and market access in as 
many sectors as possible. Current scheduled exceptions are too broad, and must be 
honed so only the most sensitive issues are excluded. 



76 


Innovative Negotiating Strategies 

We urge negotiators to explore options in developing generic or formulaic ap- 
proaches to negotiating the liberalization of market access barriers, including nega- 
tive list schedules, sectoral commitments, horizontal commitments of revised modes 
of supply, and other approaches which can move beyond the traditional “request- 
offer” format and speed the conclusion of agreements. 

C. Regulatory Reform 

In order to pursue meaningful services negotiations, WTO members will have to 
consider making adjustments to their regulatory regimes. “Regulatory reform” is a 
common set of principles that should be used as a guide or a test to regulations in 
individual sectors. Sometimes referred to as “pro-competitive” regulatory principles, 
they create a transparent framework of rules that permit markets to operate as 
freely as possible while providing necessary protections — for example in the case of 
the banking sector, ensuring safety and soundness. 

The “Reference Paper” negotiated as part of the WTO Agreement on Basic Tele- 
communications is a model that should guide the development of a framework for 
dealing with regulatory reforms in the Services 2000 Negotiations. The regulatory 
principles embodied in this paper have already had an important influence on re- 
shaping national regulatory systems towards a more market-oriented approach. The 
key is effective implementation of those principles — in their common, pro-competi- 
tive, open market interpretation and application. We must learn from experience. 
The Reference Paper, we are discovering, must be interpreted clearly and forcefully 
for dispute settlement to be effective in most instances. Similar initiatives in other 
sectors should attempt to include specific and targeted language where possible. 

Regulation should ensure that consumers (users) have access to quality, reason- 
ably-priced services that are available from reliable producers. Government’s role is 
to promote fair competition, protecting buyers from misleading, collusive, and other 
anti-competitive practices. Regulation should have four central attributes: 

• Adequacy: it should be sufficient to rectify serious market imperfections and 
thus protect the public. 

• Impartiality: governments should accord no one or no group of competitors, for- 
eign or domestic, a more favorable position than accorded other competitors. 

• Least intrusive: governments should apply regulation in ways that efficiently 
opens that market and that least disrupt the smooth functioning of markets once 
opened. 

• Transparency: laws and regulations should be easily available to the public, and 
the processes for arriving at regulations should be open and accessible to the public 
for comment. 

There is a substantial basis of support in certain industry sectors for efforts to 
achieve “regulatory reform.” Regulations are easily used to frustrate market access 
and national treatment commitments. Regulatory conflicts are often a major source 
of trade disputes. Countries should have an interest in regulatory reform because 
it is a key to reviving high growth rates. This area should be a major focus of the 
new negotiations, especially where incumbent producers have monopoly or residual 
market power as a result of their incumbency or historic position. 

D. Electronic Commerce 

International trade in services, particularly cross-border trade, is conducted to a 
large and increasing extent through electronic means. Computer technology has 
made many services tradable, which until recently were not. Electronic commerce 
and the Internet have thus added a new technological means of facilitating trade, 
adding digitized information flows to physical flows, much as ships increased trade 
over merely land-based movement of goods. 

The supply of services by electronic means can take place in any of the four modes 
set out in the GATS framework, just as the supply of services by physical means 
can. Accordingly, the supply of services by electronic technolo^ is covered by the 
GATS in the same way as all other means of delivery. Countries’ commitments in 
the GATS apply to transactions whether by digital, or traditional, forms of commu- 
nication. 

We reject the idea that there is a class of services that can be labeled electronic 
commerce and thus be negotiated separately. There may be services products that 
result from wholly new technological applications or inventions that might be identi- 
fied as electronic commerce, but these are more appropriately labeled “information 
technology services,” or services within specific sectors. Barriers to these new forms 
of services can be negotiated by sector or in a separate information technology serv- 
ices sector. 



77 


On the other hand, it is also necessary to recognize the relationship between elec- 
tronic commerce and specific industry sectors. Electronic commerce as a means of 
delivery cannot reach its full potential without significant commitments in virtually 
every industry sector. The ability to provide services across borders is a necessary 
prerequisite for the robust development and growth of electronic commerce. If serv- 
ice provision across borders is not permitted, then the ability to deliver those serv- 
ices electronically will be constrained and fragmented in national markets. 

E. Government Procurement 

Governments spend billions of dollars on procurement of services. In many coun- 
tries this procurement is conducted in closed processes that work against foreign 
suppliers. A two-pronged effort is now under way in the WTO. One prong of this 
effort is to achieve agreement on transparency measures so that all WTO members 
can commit themselves to transparent procedures without yet making new commit- 
ments to market access and national treatment. The other is to simplify the existing 
Agreement on Government Procurement which has 27 signatories, including the 
U.S., to increase its adoption by member countries. The core of this document would 
remain a commitment to permit foreign bidders to receive national treatment as 
they compete for government awards. We understand that government procurement 
is a sensitive subject and that commitments in this area may need to be phased over 
a period of time. However, we also feel it is an important area for progress to be 
made. The impact of governments being able to obtain services globally is quite sub- 
stantial. The possibility is to dramatically improve the services which governments 
provide to their citizens, and to lower costs. This will have a beneficial effect on 
economies and society worldwide. 

We support the goal of the Quad to achieve a Transparency Agreement in 1999. 
In addition, we feel that there are a set of overall objectives for services which need 
to be achieved in this area. Whether these objectives can best be met through exist- 
ing mechanisms or through the Services 2000 negotiations is of less consequence to 
us than the fact that they are actually achieved. Therefore, we believe that the ob- 
jectives in this area should be the following: 

• Insure transparency. 

• Insure access to an independent appeals and dispute resolution process. 

• Insure full market access and national treatment. 

F. Conclusion 

The Services 2000 Negotiations, thus, are an important milestone. They offer the 
opportunity to move considerably beyond the status quo and to make progress in 
all service industry sectors. It is important not to be sidetracked by architectural 
and negotiating structure, rather all the effort should focus on achieving further lib- 
eralization of services and the inclusion of regulatory reform and government pro- 
curement. 


II. Distribution Services 


A. Sector Status 

The U.S. retail industry, represented by its trade association, the National Retail 
Federation (NRF), strongly supports negotiations at the World Trade Organization 
(WTO) to further liberalize trade in distribution services. A growing number of U.S. 
retailers recognize that there are many attractive business opportunities outside the 
United States. Many foreign countries have a growing middle class that increasingly 
demands the quality of service and broad selection of products that U.S. retailers 
can offer at competitive prices. At the same time, many of these countries have com- 
paratively few retail outlets per capita. 

Retail opportunities abound even in mature markets where one increasingly sees 
the business signs of familiar U.S. stores in many downtown and suburban shopping 
areas. Notwithstanding the current global economic situation, many U.S. depart- 
ment, specialty, discount, and mass merchandise retail companies have opened 
stores abroad and are looking to expand their foreign operations to meet this grow- 
ing consumer demand outside the United States. 

In the Uruguay Round General Agreement on Trade and Services (GATS), a num- 
ber of countries agreed to include commitments in their GATS schedules to bind at 
least some part of trade in distribution services under the rules of the WTO. These 
countries include our largest trading partners — Canada, Mexico, the European 
Union, and Japan. Among the general categories included under distribution serv- 
ices: 

• 33 countries scheduled commitments on retail services. 

• 34 countries scheduled commitments on wholesale services. 



78 


• 23 countries scheduled commitments on franchising. 

• 21 countries scheduled commitments on commercial agents. 

• 2 countries scheduled under “other” distribution services. 

In many instances, these scheduled concessions were rather modest and included 
broad exceptions. 

B. Classification 

The WTO Services Sectoral Classification List defines “distribution services” as 
encompassing retailing, wholesaling, franchising, and commission agents. This defi- 
nition is, however, quite broad and somewhat vague. Therefore, negotiations at the 
WTO in this sector must take into consideration the entire network of activities that 
are necessary to support retail and other distribution services operations. For exam- 
ple, in the negotiations between the United States and China on China’s accession 
to the WTO, the area of distribution services covers all activities that support retail 
and other distribution services operation, from the port of entry to the store, and 
ultimately to the customer — e.g., customs clearance, storage and warehousing serv- 
ices; road, rail, water, and air transportation services; marketing; after-sales serv- 
ices and customer support; control of distribution networks and wholesale outlets; 
and protection of retail trademarks. It is necessary to recognize that barriers in any 
of these areas will disrupt the efficient operation of the distribution chain and, in 
order to support successful retail and other distribution services operations, barriers 
in all areas supporting distribution services operations must be addressed in some 
manner. 

C. Barriers 

In many countries, opportunities for U.S. retailers and other providers of distribu- 
tion services to establish and maintain and commercial presence are limited by var- 
ious laws, regulations, and policies. Some countries have protected their small stores 
from competition by limiting the size of retail establishments and placing arbitrary 
and onerous restrictions on where they may locate, price they may charge, and how 
they may promote products. Restrictions imposed by countries to protect so-called 
“ cultural industries” have significantly hindered the establishment of retail oper- 
ations by large U.S. booksellers. U.S. direct sellers and other retail companies have 
been severely hampered in establishing and/or expanding business operations in 
countries as a result of local sourcing requirements, and tight limitations over own- 
ership and control of distribution systems. Restrictions on investment, limitations 
on foreign ownership, restrictions on opening hours, constraints on the typesducts 
that may be sold to protect local monopolies, lack of adequate protection for retail 
trademarks, and the non-transparent and arbitrary application of commercial laws 
and regulations are further examples of barriers facing U.S. retailers. In addition, 
some countries have undermined the value of commitments they have already 
scheduled at the WTO on distribution services by including broad exceptions permit- 
ting restrictions to be imposed under a vague “economic needs test.” 

The reduction of such barriers to trade in distribution services warrants greater 
attention through specific sectoral negotiations at the WTO for several reasons. 
Since trade in distribution services includes wholesaling, retailing, and franchising, 
this sector represents the last link in the trade chain to the consumer and is, there- 
fore, essential to a well-functioning free and open trading regime. Larger retail es- 
tablishments are more likely to sell imported along with domestically-made prod- 
ucts. Moreover, market access is only meaningful if goods can be effectively distrib- 
uted at the retail level. 

D. Negotiating Objectives 

The U.S. retail industry strongly urges U.S. negotiators to seek the elimination 
of foreign restrictions to trade in distribution services. Once negotiations are under- 
way, the United States should focus generally on: 

• Obtaining commitments from as many countries as possible to bind the dis- 
tribution services sector in their GATS schedules. 

• Limiting as much as possible the number of exceptions taken by countries in 
their schedule of commitments on distribution services. 

• Persuading countries to refrain from general, open-ended exceptions in their 
schedule of commitments on distribution services. 

• Broadening and deepening the commitments from countries that have already 
included distribution services in their GATS schedules. 

• Obtaining commitments that allow for full market access for distribution serv- 
ices under the principle of national treatment, rather than merely enshrining the 
current status quo. 



79 


E. Economic Impact 

In order to achieve the goals listed above, U.S. negotiators should emphasize the 
economic and employment benefits that other countries would realize by opening up 
and liberalizing their distribution services sector. For example, the United States 
has no significant restrictions on the retail services. Nearly one in five American 
workers is employed in retail jobs that are well-paying and require a marketable 
set of skills. Moreover, the U.S. retail industry registered sales receipts in 1997 of 
more that $2.5 trillion and economic activity in the sector has a significant multi- 
plier effect throughout the U.S. economy. Thus, the retail sector alone adds substan- 
tially to U.S. Gross Domestic Product (GDP), economic growth, higher emplo 3 nnent, 
and lower inflation. In addition, the ability of the U.S. retailers to provide American 
consumers with a wide variety of reasonably-priced products is a substantial con- 
tributor to a high standard of living in the United States. 

U.S. negotiators should impress on their foreign counterparts that, as in the 
United States, an open and thriving retail industry and distribution services sector 
generally, will be an important factor in improving the standard of living of their 
citizens, expanding economic activity and growth, and developing a modern con- 
sumer society. Those benefits should not be taken lightly. When U.S. retailers estab- 
lish commercial operations in a foreign country, those operations: 

• Provide much needed local investment. 

• Create jobs for many local people, not only in the retail establishment itself, but 
also in the warehouses, and transportation and advertising services that support 
those operations. 

• Allow local workers to develop business expertise and a better understanding 
about proper business practices in the services sector. 

• Provide local consumers with a better selection of goods at lower prices that will 
help improve the quality of their lives. 

• Make their country’s retail sector and the economy as a whole more efficient. 

III. Express Delivery Services 


A. Sector Status 

Express delivery service, as provided by companies such as DHL, Eederal Express, 
TNT and United Parcel Service, is a relatively new and rapidly expanding industry, 
having evolved during the past two decades in response to the needs of global inter- 
national commerce. The express transportation industry specializes in time-definite, 
reliable transportation services for documents, packages and freight. Express deliv- 
ery has grown increasingly important to businesses needing to use time-sensitive, 
“just-in-time” manufacturing techniques and supply-chain logistics in order to re- 
main internationally competitive. The express industry has revolutionized the way 
companies do business worldwide, enabling businesses to rely on predictable, expe- 
ditious delivery of supplies. Producers using supplies from overseas no longer need 
to maintain costly inventories, nor do business persons need to wait extended peri- 
ods of time for important documents. In addition, consumers now have the option 
of receiving international shipments on an expedited basis. 

Increased reliance on express shipments has propelled the industry to average an- 
nual growth rates of 20 percent for the past two decades. The industry’s explosive 
growth is reflected in the rapid expansion of air cargo shipments: the expedited 
movement of cargo by air now accounts for 37 percent of the value of world trade, 
a share which is expected to continue to increase. 

The express transportation industry is essential to the future growth of world 
trade and commerce, as more and more trade is centered on the type of high-value 
goods that are carried by our industry, such as electronics, computers and computer 
parts, software, optics, precision equipment, medicine, medical supplies, pharma- 
ceuticals, aircraft and auto parts, avionics, fashions and high-value perishables. In 
addition, the industry encourages small and medium-sized businesses to grow by en- 
abling them to participate in international trade. The express transportation sector, 
with its integrated services that provide door-to-door delivery, frees small businesses 
from the burdensome and costly tasks of arranging for the transportation of their 
goods through a myriad of unrelated and often non-communicating parties. 

Express delivery operators, represented through their trade association, the Air 
Courier Conference of America (ACCA), strongly support free and open trade and 
investment worldwide. Express operators provide integrated, door-to-door delivery 
service for documents and packages, and customers expect value-added services like 
time guarantees, electronic information, brokerage services and more. Express cus- 
tomers are not as concerned with how their documents or parcels are moved — just 
that they arrive on time. This could be by plane, train, truck, van, automobile, mo- 



80 


torcycle, or even gondola. Consequently, a broad spectrum of issues affects the ex- 
press industry, and includes laws and regulations in the areas of intermodal trans- 
portation, air auxiliary services, distribution, warehousing, customs, postal, tele- 
communications, logistics, brokerage, insurance, and freight forwarding. For this 
reason, barriers to international trade in the express industry can involve trade re- 
strictions and trade distorting measures in any of these pertinent service sectors. 

B. Classification 

Under the Uruguay Round’s Services Sectoral Classification List, express delivery 
services are currently classified as “courier services” — a communications service 
(CPC 7512), along with postal, telecommunications and audiovisual services. This 
classification fails to reflect the true nature of express delivery services, which pro- 
vide for regular exchange of physical items over a network of locations and, as de- 
scribed above, incorporate transportation, communications and other services. 

Express delivery services should be reclassified to more accurately reflect the na- 
ture of express operations which, at a minimum: 

• Provide the business community and general public with regular (usually every 
business day), expedited and reliable collection, transport and delivery of physical 
objects across a network of geographic areas. 

• have management and communication systems that monitor and ensure end-to- 
end quality of service; and 

• Involve the operation of such offices, buildings, telecommunications facilities, 
computers, sorting equipment, automobiles, trucks, aircraft, and other vehicles as 
may be necessary to accomplish the basic function of express delivery. 

A reclassification of the industry would facilitate GATS 2000 negotiations that are 
meaningful to the industry. 

C. Barriers 

As described above, barriers in any of the numerous operational areas encom- 
passed by express operators can hinder express delivery services. Among the most 
persistent problems faced by the industry are inconsistent customs clearance poli- 
cies that add costs and delays to express services. These barriers include: 

• Restrictions on the value and weight of express shipments. 

• Delays, generally of at least one day and up to 96 hours, from lengthy customs 
clearance procedures. 

• Cargo handling restrictions that force express carriers to use local handling 
companies — rather than our own employees — to transport our express shipments 
from the baggage collection area to warehouses where they can clear local customs. 

• Arbitrary revaluation of declared value of shipments by customs. 

• Imposition of a variety of charges and fees for express shipments, including 
shipments that are transiting one country on their way to their ultimate destina- 
tion. 

To eliminate these and other barriers, ACCA believes that the WTO should re- 
quire all members to adopt and implement the express guidelines of the World Cus- 
toms Organization. 

Because express operators provide integrated, door-to-door services, barriers to 
any element of transportation linked to these services pose a problem for the indus- 
try. Unfortunately, in markets worldwide ACCA members encounter a variety of 
transportation restrictions that limit — and increase the cost of — express service. For 
the express sector to achieve meaningful trade liberalization under the WTO, it 
must be accorded access to land, air and other transportation infrastructures in all 
markets. For Example, arbitrary operating restrictions on carriers to limit their 
market, such as types of equipment and vehicles that can be used, and weight or 
size of packages, must be prohibited. 

Firms also face anti-competitive practices in many markets, particularly with re- 
spect to postal operations. Because some of the industry’s operations are postal-re- 
lated (e.g., the delivery of documents and small packages), express operators are fre- 
quently affected by postal policies in foreign countries. In fact, throughout the world, 
countries exercise varying degrees of authority over the delivery of printed matter. 

Many countries have vested the national postal service with local monopolies over 
the pick-up and delivery of letters and documents. This often imposes unfair or un- 
reasonable restrictions on international service, which limits the operations of inter- 
national express service companies. While we are not advocating that U.S. policy- 
makers seek the dissolution of national monopolies for domestic postal services, we 
do believe that the domestic monopoly claim should not be extended unfairly and 
unreasonably to encompass cross-border services. Unified, end-to-end administrative 
control makes rapid and reliable international express service possible. 

U.S. negotiators should seek WTO commitments that would: 



81 


• Prohibit a foreign government from determining unilaterally the basic condi- 
tions of express service to and from the United States (market entry, price regula- 
tion, operating restrictions, and extraordinary or discriminatory teixation). 

• Ensure that a foreign postal monopoly does not have an outright prohibition 
against the provision of international service by U.S. express delivery providers. 

• Prohibit profits derived from services provided by national postal authorities 
from subsidizing services that compete with foreign companies. 

• Prohibit teixation of private sector companies from subsidizing a national postal 
administration’s services. 

• Ensure that national postal administration’s parcel and non-monopoly docu- 
ment services that compete directly with foreign companies would be subject to ef- 
fective and impartial regulatory scrutiny to protect against illegitimate cross-sub- 
sidy. 

• Ensure that a postal administration’s competitive services be subject to the 
same laws and regulations imposed on private companies. 

• Prohibit a foreign country from unilaterally selecting the U.S. express carriers 
that may service an international market with restricted entry. 

• Prohibit a teix on bilateral services that exceeds the net cost to a legitimate local 
monopoly carrier. 

• Prohibit discriminatory treatment of U.S. carriers. 

D. Negotiating Objectives 

With respect to the WTO negotiating agenda, we urge that express delivery serv- 
ices be a focus of the GATS 2000 Negotiations. Specifically, we advocate the negotia- 
tion of pro-competitive regulatory principles for the express sector. These principles 
should be legally binding on all WTO members, just as is the case for the tele- 
communications pro-competitive regulatory principles agreed to during the previous 
GATS negotiations. 

ACCA has detailed a proposed set of pro-competitive regulatory principles in a 
separate submission to USTR. These principles would encompass liberalized cus- 
toms, postal, air cargo and other policies. We look forward to working with USTR 
throughout the GATS 2000 process to liberalize treatment of express delivery serv- 
ices, thereby expediting the flow of goods globally. 

IV. Financial Services 


A. Benefits 

Increasing competition in financial services markets through liberalization of re- 
straints on foreign participation in financial services activities will enhance eco- 
nomic growth for all countries. Such liberalization will help provide developing coun- 
tries with: (1) essential information and infrastructure to speed their modernization; 
(2) improved health, safety and retirement security for working people and; (3) the 
broadest range of products and services at the lowest cost for consumers. Addition- 
ally, it will help enhance investor confidence, and attract and retain private long- 
term direct investment. Liberalization promotes the development of modern, effi- 
cient, well-regulated financial markets. 

B. Sector Status 

WTO financial services negotiations provide an excellent opportunity to achieve 
meaningful liberalization on a global scale. By securing binding commitments by a 
significant number of countries of the right of foreign companies to establish and 
to own all or a majority share of their direct investments, the 1997 negotiations 
made important progress. 

Even though the 1997 agreement didn’t include comprehensive agreements to re- 
duce or eliminate investment barriers for foreign financial service providers, the 
agreement made major progress in a number of countries. Much remains to be done 
in the upcoming negotiations and the 1997 Agreement serves as a strong foundation 
to add truly liberalizing commitments. 

C. Barriers 

The financial services 2000 negotiations offer an extremely important opportunity 
to build on this base in a number of ways: 

• Further the scope of commitments by reducing the number of exceptions coun- 
tries have written into their commitment schedules. 

• Expand rights of establishment and ownership. While progress has been made 
in securing bindings of existing practice in regard to establishment and full or ma- 



82 


jority ownership, these rights should be expanded and secured from more countries 
that made no such commitments. 

• Expand cross border trading rights. Little attention has been given to securing 
rights to sell financial services across borders in negotiations to date. WTO members 
should, where appropriate take into account the views and legitimate objectives of 
the regulators. 

• Modernize and reform regulatory structures that frustrate trade commitment 
and competition. Regulatory regimes can be used to block gains made in trade nego- 
tiations by imposing unnecessary restraints on foreign financial services suppliers, 
and thus favoring local suppliers. Such practices prevent realization of the goal of 
national treatment. They are inherently anti-competitive and inefficient. These “pro- 
competitive regulatory reforms” should be directed at establishing fair, competitive 
markets by focusing on solvency and transparency to provide the most effective pro- 
tection of consumers and markets. 

• Achieve impartial administration of regulations. Article VT of the GATS, apply- 
ing to Domestic Regulation, requires that “in sectors where specific commitments 
are undertaken, each Member shall ensure that all measures of general application 
affecting trade in services are administered in a reasonable, objective, and impartial 
manner.” It further requires each member to set up tribunals or procedures which 
provide prompt review and remedies for administrative decisions affecting trade in 
services, and it establishes that members must provide impartial review of these 
procedures. These requirements for reasonable, objective and impartial administra- 
tion of regulations should be amplified by the establishment of principles against 
which regulations should be tested. 

• Promote administrative and regulatory transparency. Clear and reliable infor- 
mation about a country’s financial services laws and practices advances equitable 
trade and competition, reduces the possibility of manipulation, and is an essential 
component of a liberalizing agreement. Non-transparent regulations hamper foreign 
firms’ ability to do business. Transparency requirements make countries more ac- 
countable for their actions and provide information needed to evaluate compliance 
with the agreement. 

• Reduce and remove obstacles to the free movement of people. The temporary 
posting of key business personnel should be facilitated by creating a system of easily 
obtainable and renewable visas, and by easing or removal of other restrictions. 

D. Classification 

Should include language necessary to provide for protection and applicability for 
pensions, long-term care, disability income and life insurance and reinsurance. 

E. Negotiating Objectives 

• Foreign investors should have the right to establish through a wholly owned 
presence or other form of business ownership, and to operate competitively through 
established vehicles available to national companies. 

• Foreign investors should have the same access to domestic and international 
markets as domestic companies. They should be treated to regulatory and other pur- 
poses on the same basis as domestic companies. 

• Unnecessary restrictions on cross-border financial services businesses and con- 
sumption of services abroad should be removed, to encourage trade without requir- 
ing establishment. 

• Creating a system of easily obtained and renewable permits should facilitate 
the temporary posting of key business personnel. 

• Existing investments should be grandfathered by Member countries that did not 
commit to do so in the 1997 Agreement. 

• Countries wishing to accede to membership in the WTO should do so on the 
basis of commitments to substantial financial liberalization consistent with the 1997 
Financial Services Agreement and the goals set forth above, resulting in commer- 
cially meaningful access. Countries should be permitted to participate in the nego- 
tiations in a way which encourages them to make such commitments. 

• Financial regulation principles leading to the development of sound, more com- 
petitive markets should be negotiated. Such regulation will foster risk management 
standards, transparency, product diversification and consumer choice important for 
public policy purposes. It will also enhance financial security for citizens, nations 
and the global financial system. 

• Transparent laws and regulations are necessary to liberalize financial services. 
Clear and reliable information about a country’s financial services laws and prac- 
tices promotes equitable trade and competition, and reduce the possibility of manip- 
ulation. 



83 


• A notification waiting period for all new national and sub-national taxation of 
financial services should be established to provide industry and governments with 
a minimum of one year to factor changing taxation rates in technical, solvency and 
pricing decisions. 

• Nations should commit to lock in and improve pension policies that encourage 
private savings for retirement, in recognition of worldwide aging populations and re- 
lated pressure on government social security systems. 

V. Health Care Services 


A. Sector Status 

There appears to be little coverage of healthcare services in current agreements 
between countries; therefore, these comments reflect preliminary thought process 
around GATS negotiations for health care services. We intend to continue to gather 
information and talk with businesses that are working throughout the world in the 
health care services sector to bring additional clarity to the submission. 

There are several emerging global trends that could beneht U.S. health care serv- 
ice suppliers in overseas markets including the rapid growth in health care expendi- 
tures in a large number of countries. Rapidly expanding health care expenditures 
in many developed countries are due to an increase in their aged populations, the 
demographic segment that uses health care services most intensively. The entire 
spectrum of geriatric services, both community and institutionalization, for senior 
citizens should be explored. Increased health expenditures in rapidly developing 
economies are occurring as newly emerging middle classes demand the levels of 
health care previously enjoyed only in more developed economies, such as the U.S. 
and Western Europe. 

We believe we can make much progress in the negotiations to allow the oppor- 
tunity for U.S. businesses to expand into foreign health care markets. In the U.S. 
competition has provided reductions in the cost of health care as well as increased 
quality in the care that is being provided. Some types of services are consulting and 
training for local pharmacy management; consulting and training for health care in- 
cluding treatment of abusive behaviors; telemedicine; development of treatment pro- 
tocols to enhance healthcare quality; sharing expertise on appropriate treatment; 
and, management of overseas health care institutions. 

According to official statistics from the U.S. Department of Commerce, in 1996 
U.S. receipts of health care services amounted to $872 million. This number was 2 
percentage points less than the average annual export growth rate of nearly 6 per- 
cent for health care services during 1991-1995. U.S. cross-border imports of health 
care services amounted to an estimated $550 million in 1996. U.S. receipts and pay- 
ments for health care services accounted for less than 1 percent of such cross-border 
trade in all service industries in 1996. The U.S. cross-border trade surplus in health 
care services was $322 million in 1996. 

B. Classification 

Below are the health care entries from the WTO’s Services Sectoral Classihcation 
List (W-120) with reference numbers to the UN’s Central Product Classification 
(CPC) numbers. In current practice, many WTO members do not use the CPC ref- 
erences in their scheduled commitments; practices may vary per sector. While the 
W-120 and CPC classifications provide a reasonable start toward definition of the 
health care services that should be covered in this negotiation, we need flexibility. 
We do not want to be locked into only these specific existing classihcations. For ex- 
ample, we need flexibility to include some services which may not be captured by 
these definitions. We also recognize that some of these services may be included as 
parts of goods negotiations or in the definitions of other service sectors. We will con- 
tinue our work to provide negotiators with the most detailed and comprehensive de- 
scription of the health care services we are now providing or which we will want 
to provide. 


WTO Services Sectoral Classification List (W-120) 

Sectors and Sub-Sectors 

1. Business Services 

2. A. Professional Services 

h. Medical and Dental Services 9312 

i. Veterinary Services 932 

j. Services provided by midwives, nurses, physiotherapists and para-medical 
personnel 93191 



84 


8. Health Related and Social Services 

A. Hospital Services 9311 

B. Other Human Health Services 9319 

C. Barriers 

Historically, health care services in many foreign countries have largely been the 
responsibility of the public sector. This public ownership of health care has made 
it difficult for U.S. private-sector health care providers to market in foreign coun- 
tries. In addition, there are substantive differences in emerging markets vs. OECD 
countries. In most emerging markets there are few barriers to these services but 
barriers can be erected in the future as laws and regulations are enacted absent 
commitments in writing. Existing regulations are by and large not a problem in 
emerging markets. 

However, existing regulations do present serious barriers in OECD countries, in- 
cluding: 

• Restricting licensing of health care professionals. 

• Excessive privacy and confidentiality regulations. 

• Lack of transparency in the OECD countries’ regulations. 

• Difficulty processing permits for work and for facilities. 

D. Negotiating Objectives 

Three general objectives are to encourage more privatization, to promote pro-com- 
petitive regulatory reform, and to obtain liberalization. Specific objectives are: 

• Transparent licensing of health care professionals and facilities, which do not 
place unnecessary or discriminatory burdens on U.S. providers. 

• Obtain market access and national treatment commitments allowing provisions 
of all health care services cross border. 

• Allow majority foreign ownership of health care facilities. 

• Obtain a commitment for the cross-border provision and transfer of health care 
information. 

• Seek inclusion of health care in WTO government procurement disciplines. 

• Strengthen international co-operation to promote pro-competitive regulatory re- 
form across countries. 

• Negotiate Mutual Recognition Agreements (MRAs) for licensing of professionals 
and cooperative agreements on regulation of facilities. 

• Develop principles to guide regulators so as to minimize unnecessary costs on 
trade and investment in the health care sector. 

• Simplify regulations and provide transparency for movement of personnel, both 
professionals and patients. 

VI. Information Technology Services 


A. Sector Status 

The information services industry has a vital interest in the successful conclusion 
of the World Trade Organization (WTO) 2000 Services negotiations. Information 
technology, while a service industry itself, is critical to the success of the other serv- 
ices industries, which, in turn provide a substantial market for information services. 
As the services sector thrives, so will the information services sector. 

While substantive commitments by many countries in the area of value-added 
services (information services) are included in the General Agreement on Trade in 
Services (GATS), some commitments are weak, while others are non-existent. The 
2000 negotiations provide an opportunity to broaden and deepen the current com- 
mitments. 

Recent international agreements affecting information technology services have 
opened related sectors, such as basic and enhanced telecommunications and offered 
protection and trade liberalization in other sectors (Trade-related Intellectual Prop- 
erty — TRIPS, and the Information Technology Agreement — ITA). 

GATS Annex on Telecommunications and the WTO Agreement on Basic Tele- 
communications Services 

The Enhanced Telecommunications Annex provides substantial commitments for 
information technology services and for access to telecommunications networks for 
the provision of such services. Examples of services covered under this Annex are 
electronic mail, on-line information and database retrieval, code and protocol conver- 
sion, data processing, and electronic data interchange. While a number of countries 
listed significant limitations with regard to foreign ownership and the required use 



85 


of public networks, on the whole, the provision of information technology services 
is relatively open and burden-free. 

The 1997 WTO Agreement on Basic Telecommunications Services (GBT) and its 
reference paper on pro-competitive regulatory principles is an integral element of 
providing a liberalized environment for trade in information technology services. 
Under a very broad and essentially open-ended definition employed for the negotia- 
tions, basic telecommunications are considered any telecommunications transport 
networks or services and the schedules of commitments cover a wide variety of serv- 
ices fitting this definition. Some examples of basic telecommunications include: voice 
telephone services, packet-switched data transmission services; circuit-switched data 
transmission services, telex, telegraph, facsimile and private leased circuit services, 
analog/digital cellular/mobile telephone services, mobile data service, paging, per- 
sonal communications services, satellite-based mobile services, fixed satellite serv- 
ices, VSAT services, gateway earthstation services, teleconferencing, video transport 
and trunked radio system services. Categories of service included: local, long dis- 
tance, international, wire-based, radio based, resale, facilities-based, for public use, 
and for non-public use (closed user groups). 

The agreement, which opened trade in the $600 billion global basic telecommuni- 
cations market, will promote competition in world telecommunications markets, 
spur innovation and competition-based pricing and speed the delivery of robust in- 
formation products and services to consumers everywhere. Ultimately, we believe 
the agreement will expand the market not only for telecommunications, but for 
other information service providers as well. 

The GBT commitments are a key element in securing the infrastructure for trade 
in information services. Together with the agreement on enhanced telecommuni- 
cations services, we believe many of the basic elements to secure access to infra- 
structure over which information technology services thrive, are subject to existing 
liberalization commitments. It is our understanding that the GATS Annex on En- 
hanced Telecommunications Services and the GBT cover the delivery of services 
electronically. We urge the USTR to enforce these existing commitments, expand 
commitments from those who made limited commitments, and seek new commit- 
ments from those who have not signed on to the GBT. 

Information Technology Agreement (ITA) 

Concluded in December 1996, the ITA provides for the elimination of customs du- 
ties and other charges on information technology products through equal annual 
tariff reductions and covers five main categories of IT products: computers, tele- 
communications products, semiconductors, semiconductor manufacturing equipment, 
software, and scientific instruments. The tariff reductions, which are scheduled to 
begin on July 1, 1997 and to conclude on January 1, 2000, are to be implemented 
by signatories on a most-favored-nation (MEN) basis. 

The ITA will open up global trade in a wide array of information technology prod- 
ucts, valued at over $500 billion, and spur growth of the global information infra- 
structure. The USTR estimates that the ITA will provide a competitive boost of 1.8 
million jobs in the U.S. 

The agreement will bring significant benefits to software and telecommunications 
companies. The agreement includes a broad definition of software products, which 
covers multimedia and interactive software and “Nuisance tariffs” on software (tar- 
iffs below 3%) will be eliminated as soon as July 1, 1997. The agreement also covers 
a wide array of telecommunications equipment and products, including fiber optic 
cable. 

The ITA, while a goods-based (rather than services-based) agreement, is essential 
to the liberalization of trade in information technology services, as it provides the 
means to deliver IT services. We urge the USTR to work with its trading partners 
in the WTO to expand commitments made in the ITA. 

Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) 

Adequate and effective protection and enforcement of intellectual property rights 
is a critical element in fostering the growth of IT globally. As electronic commerce 
continues to grow it will become increasingly important that commitments to protect 
intellectual property are enforced. In many countries, both developed and devel- 
oping, civil and administrative procedures do not meet the enforcement standards 
set forth in Part III of the TRIPS agreement. As more and more software is being 
sold over the Internet, adequate and effective IPR enforcement becomes even more 
important. 

We recommend the USTR press other WTO members to meet the enforcement ob- 
ligations outlined in Part III of the TRIPS Agreement. 



86 


B. Classification 

Sector Classifications and Sub-Sectors (CPC Codes) 

The emerging convergence between telecommunications services, broadcasting, 
audiovisual services and information technology services has made clear distinctions 
between sector classifications increasingly difficult. For example, a barrier that re- 
stricts the number of foreign produced films from being broadcast or foreign publica- 
tions from being distributed may affect both broadcasters who deliver films over the 
Internet as well as the Internet Service Provider who runs the network over which 
the films/publications are delivered. 

We strongly encourage the USTR to review these classifications in a dialogue with 
the various industry sectors involved. We also encourage the USTR to begin infor- 
mal discussions on this topic with their trading partners. 

Expanded Information Technology Services 

Information technology has become so prevalent in the provision of many services 
that the services themselves are being considered information technology services. 
Call centers, for example, are so dependent on the underlying information tech- 
nology that they are provided by many information technology providers as a rou- 
tine service offering. Customer loyalty programs, order fulfillment functions, remote 
monitoring services, remote inventory services and remote maintenance and repair 
services are examples of such services. Some involve physical functions while others 
such as remote monitoring are performed entirely electronically. Current computer 
and related services section of the CPC (listed immediately below) is somewhat lim- 
ited given the rapid advances in this dynamic sector. 

CPC Computer and Related Services: 

• Consultancy services related to the installation of computer hardware (841) 

• Software implementation services (842) 

• Data processing services (843) 

• Data base services (844) 

• Other (845 -i- 849) 

The USTR should expand the definition of information technology services. We 
recommend a number of services be included and the category be changed to infor- 
mation technology services. We recommend the USTR consider the classification re- 
vised CPC scheme below. 

Information Technology Services: 

• Consultancy services related to the installation of computer hardware 

• Software implementation services 

• Data processing services 

• Data base services 

• Management consulting 

• Services related to management consulting 

• Customer services 

• Other 

C. Barriers 

The private sector has been the driving force behind the rapid growth, innovation, 
and development of information technology services, the Internet and electronic 
commerce. Despite this rapid growth, a few barriers remain. Elimination of these 
barriers must be industry led and market driven. Consistent with the U.S. Adminis- 
tration’s Framework for Global Electronic Commerce, we strongly recommend that 
the USTR continue to recognize the course of industry leadership and self-regulation 

Barriers also remain with regard to the current commitments of some countries. 
Restrictions on foreign ownership and requirements for local partners of varying de- 
scriptions hamper the ability to provide information technology services seamlessly. 
In addition, requirements to use public networks and restrictions on the use of 
leased lines also provide barriers to true global market access. Einally, national 
treatment is not a reality in every country. 

Practices in government procurement vary dramatically across the globe and offer 
considerable barriers to the provision of information technology services to govern- 
ments. They range from many of the OECD nations which have, both on paper and 
in practice, highly organized and wholly transparent processes, to nations which 
conduct procurement entirely behind closed doors. Likewise, a number of nations 
have very open procurement markets while others are closed both to foreign firms 
and to those firms not in favor, regardless of capability. Finally, there is the same 



87 


range of conduct regarding the ethics of procurement, with many “clean” systems 
and just as many in which bribery and corruption are the norm. 

The greatest barrier to the continued development of the information technology 
industry globally, however, is the lack of market access and national treatment in 
the industry sectors which information technology serves. If the financial services 
industry is not permitted to sell mutual funds across borders, then the capability 
of the information technology services industry to provide that service electronically 
is moot. For the information technology services industry to reach its full potential 
to deliver benefits to individuals as well as entire economies, the markets in every 
other industry sector must be opened and liberalized. 

D. Negotiating Objectives 

We urge the USTR to set the following negotiating objectives: 

• Expand the coverage of existing agreements in information technology related 
and enabling areas such as the Enhanced Telecommunications Annex, the Basic 
Telecommunications Services Agreement, and the Information Technology Agree- 
ment. 

• Develop a consensual view of and acceptance of the modes of supply as applied 
to information technology services in the section above. 

• Expand the definition of information technology services. 

• Insure information technology services can be performed and delivered without 
establishment. 

• Achieve full market access and national treatment for information technology 
services and for services in a broad range of other sectors. 

• Seek commitments in government information technology services procurement 
for full market access, national treatment, transparency, access to independent ap- 
peals, and dispute resolution processes. 

VII. Professional & Business-Related Services 


A. Sector Status 

Professional and business-related services are those services for which the pro- 
vider requires specialized, technical knowledge — acquired through post-secondary 
education or equivalent training or experience — which is adapted and applied to the 
specific needs of business clients. Many of these services are performed by licensed 
professionals for which the right to practice is controlled by the government and/ 
or professional bodies. These licensed professions tend to be more regulated than 
commercial services because the license holders are authorized to practice restricted 
activities in return for which they are expected to assume public interest respon- 
sibilities. Examples include accountancy, architecture, engineering and law. Other 
business-related services share common characteristics with the professions, such as 
high levels of human and intellectual capital input and close interaction between 
the provider and the client, but generally are not highly regulated or controlled by 
licenses granted by government or professional bodies. Examples include manage- 
ment and business, including computer-related, consulting services. Thus, this dis- 
cussion topic overlaps, with some extent, with the section on information technology 
services. [Please note that this section addresses the licensed professions most close- 
ly associated with services provided to businesses and, thus, does not cover medical 
doctors, dentists, nurses, pharmacists, beauticians, etc. The medical professions are 
covered in the “Health Services” section]. 

Statistics on trade in services are notoriously poor, so it is difficult to know the 
volume of trade in professional and business-related services worldwide. In the U.S. 
balance-of-pa 3 mients category of “business, professional and technical services,” U.S. 
providers exported $17.6 billion in 1996 and $21.3 billion in 1997. Imports were val- 
ued at approximately one-quarter of these amounts. There is reason to believe, how- 
ever, that these numbers substantially understate the level of international business 
in this sector, because they do not include data on earnings from foreign invest- 
ments and foreign affiliates, especially with respect to “accounting” firms and infor- 
mation technology companies. Nor do they include fees generated by mobile service 
providers, such as lawyers, architects, engineers and consultants, who serve tempo- 
rarily in foreign countries hut are paid at home. 

Professional and business-related services received substantial coverage in the 
schedules of commitments under the General Agreement in Trade in Services 
(GATS). 

• More than 60 WTO member governments have made commitments in account- 
ancy and related services, accounting for approximately 90 percent of the world 
market measured by gross revenues. Virtually all these commitments confirmed the 
status quo with respect to market access and national treatment. 



88 


• More than 40 WTO member governments made commitments on architectural 
services, and just fewer than 30 made commitments on urban planning and land- 
scape architectural services. 

• More than 50 WTO member governments made commitments on engineering 
services. 

• More than 40 WTO member governments have made commitments in one or 
more aspects of legal services. The commitments mostly cover advisory services on 
international and home country law. The commitments are mostly in the nature of 
a standstill and do not achieve the American bar’s objectives on Foreign Legal Con- 
sultants or rules for examinations in foreign jurisdictions. 

• More than 60 WTO member governments also made commitments in computer- 
related services an management consultancy, also accounting for about 90 percent 
of the world market measured by gross revenues. Again, the commitments largely 
confirmed the status quo, which for the most part is relatively free of trade restric- 
tion and discriminatory regulation. 

It should also be noted that the WTO and the GATS have created an international 
legal umbrella over substantial work initiated by the professions themselves in the 
areas of mutual recognition and standards. Two examples follow: 

• The International Union of Architects (UIA) Professional Practice Commission 
has produced the “UIA Accord on Recommended International Standards of Profes- 
sionalism in Architectural Practice.” The American Institute of Architects and the 
Architectural Society of China serve as the Commissions’ joint secretariat. The docu- 
ment was initially adopted by the UIA’s 91 national member sections in July 1996. 
A revised and expanded edition, including recommended policy guidelines, will be 
presented for adoption at the XXI UIA Assembly in June 1999 in Beijing. A primary 
objective of this document is to allow member sections to more easily negotiate bilat- 
eral mutual recognition agreements (MRAs). 

• The American Institute of Certified Public Accountants (AICPA) strongly sup- 
ports the work of the International Federation of Accountants and the International 
Accounting Standards Committee in developing a body of widely-accepted inter- 
national accounting and auditing standards and international guidelines on ethics. 
In addition, the AICPA has joined with the National Association of State Boards of 
Accountancy to complete MRAs with the Canadian Institute of Chartered Account- 
ants and the Institute of Chartered Accountants in Australia. Additional discussions 
are continuing with other professional bodies in Australia, England, Ireland, Mexico 
and Scotland. 

B. Classification 

The professional and business-related services covered by this paper are found in 
the following categories listed in the World Trade Organization’s (WTO) “Services 
Sectoral Classification List.” 

Business Services 
Professional Services 
Legal services 

Accounting, auditing and bookkeeping services 

Taxation services 

Architectural services 

Engineering services 

Integrated engineering services 

Computer and Related Services 

Consultancy services related to the installation of computer hardware 

Software implementation services 

Other Business Services 

Management consulting services 

Services related to management consulting 

CSI recommends that the U.S. Trade Representative seek the inclusion of several 
additional classifications of professional and business-related services in the specific 
commitments made by member governments. These are: 

• Actuarial services. 

• Counseling in business transactions. 

• Participation in the governance of business organizations. 

• Mediation, arbitration and similar non-judicial dispute resolution services. 

• Public advocacy and lobbying. 

In the area of computer-related services, the “Information Technology” section of 
this paper makes a number of useful recommendations. 



89 


C. Barriers 

International trade in professional and business-related services in conducted 
both by individuals who have met specified professional qualification requirements 
or have specialized business knowledge and by firms owned by and/or employing 
these individuals. Professional and business-related services are rendered in all four 
modes of delivery contemplated by the GATS. They may be provided across borders 
by professionals travelling to another country or communicating electronically with 
clients there. More typically, the services are provided by locally-established firms 
affiliated with others abroad through ownership, contract or cooperative agreement. 
And in some cases they are provided to foreign consumers visiting the provider’s 
home jurisdiction. 

The impediments to trade in professional and business-related services stem from 
regulations intended to protect local providers from competition and, probably more 
importantly, from domestic regulations intended to protect defined national inter- 
ests. Most professions are enveloped in national and/or sub-national systems of reg- 
ulation, which were developed to respond to particular circumstances and political 
demands. These distinct systems have persisted even as the globalization of markets 
has accelerated and, thus, have given rise to trade and investment barriers. 

Impediments to Professional Firms 

• Restrictions on the movement of capital and investment, such as foreign equity 
limits, screening of investments and the application of economic needs tests, and re- 
serving ownership to locally-qualified professionals. 

• Restrictions on making current pajments, such as profit remittances and the 
payment of royalties and fees across borders. 

• Restrictions on the types of business structures permitted. 

• Numerical, geographic or other restrictions on the establishment of branch of- 
fices. 

• Requirements to employ only local people and professionals or the use of quotas 
to limit intra-firm transfers. 

• Inadequate protection on intellectual property, such as software, practice meth- 
odologies and training materials, as well as restriction on the use of international 
firm names. 

Impediments on Individual Professionals 

• Onerous professional qualification requirements, such as citizenship, permanent 
and/or prior residency, local university degrees, and excessively long experience re- 
quirements, and administering qualification examinations in languages other than 
the WTO working languages. 

• The use of different technical standards or standards of practice in each na- 
tional and/or sub-national jurisdiction. 

• Difficulties in obtaining visas and work permits. 

Impediments Affecting both Firms and Individuals 

• The lack of transparency in the regulatory process, including the failure to 
make laws and regulations available, closed decision-making processes, the lack of 
opportunity to comment before rules are adopted, and the absence of appeal proc- 
esses. 

• Local establishment requirements. 

• Rules either requiring or prohibiting relationship between foreign and local pro- 
fessionals or professional firms. 

• Customs duties on professional documents, project models, training materials, 
promotional publications, and software. 

• Scope-of-practice limitations that may prohibit the provision of selected or mul- 
tiple services to clients. 

• The assignment of contract by government agencies, the mandatory rotation of 
providers, and “Buy National” policies. 

• Prohibitions on advertising professional services. 

• Reciprocity laws or regulatory requirements. 

D. Benefits of Liberalization 

Professional and business-related services are part of the intellectual capital in- 
frastructure essential to the operation of modern economies. For example: 

• Accounting and auditing services are critical to management control of enter- 
prises and provide the assurance that underlies efficient capital markets. 

• Architectural and engineering services are essential to the creation of modern 
business structures and processes. 



90 


• Legal services make possible effective relations between buyers and sellers and 
among business partners, as well as help to protect the investments and property 
of national of one country transferred to another. 

• Consulting services provide valuable management know-how, competitive in- 
sight, and advice on modernizing and reengineering business enterprises. 

Liberalization of trade and investment in this sector makes available to business 
users state-of-the-art inputs to their production processes. Moreover, the inter- 
national operation of professional and business-related service providers are impor- 
tant conduits for transferring state-of-the-art technology and training, which has 
ripple effects throughout the host economies. And many professional services firms 
provide international networks by which host country services can be exported. 

F. Negotiating Objectives 

• U.S. negotiators should press governments that have not made specific commit- 
ments on professional services to do so. The goal should be that all 132 WTO mem- 
ber governments apply the GATS rules to professional and business-related services. 
Some significant markets, such as India, Indonesia and the Philippines, are now 
missing. 

• U.S. negotiators should press other governments to remove as many of the “ex- 
ceptions” in their scheduled commitments as possible. The aim should be full appli- 
cation of the market access and national treatment rules to professional services. 

• U.S. negotiators should champion “freedom of association” for U.S. and foreign 
professionals, seeking to eliminate requirements or prohibitions of professional asso- 
ciations in partnership or in other forms of “corporate” practice. 

• U.S. negotiators should work for an agreement on business mobility (temporary 
entry of business people), which would remove the visa requirements and red tape 
for qualified professionals entering another WTO member country for specific, tem- 
porary assignments. 

• U.S. negotiators should work for horizontal disciplines on domestic regulation 
of professional and business-related services under GATS Article VI that go beyond 
the disciplines developed for the accountancy sector. In particular, they should seek 
a meaningful “necessity test” under which onerous regulations could be challenged 
as “more burdensome than necessary, transparency rules that allow interested par- 
ties to comment in advance on proposed legislation, and pro-competitive regulatory 
structures. 

• U.S. negotiators should seek an extension of the principles of the Agreement on 
Technical Barriers to Trade to service industries and professions. 

• With respect specifically to legal services, U.S. negotiators should focus on two 
objectives: (1) adoption of the concept of “foreign legal consultants” whereby lawyers 
are permitted to practice their home country law (as well as third country and inter- 
national law) in foreign jurisdictions; and (2) “model rules” on bar examinations that 
assure the exams are related the areas of law to be practices, follow transparent 
procedures, are based on information readily available (through training courses, 
etc.), and are administered in one of the working languages of the WTO. 

VIII. Telecommunications 


A. Sector Status 

As the new millennium fast approaches, it has become obvious that telecommuni- 
cations networks provide the underlying infrastructure and services upon which 
most of the world’s information and commerce depend. It is safe to say that without 
a robust telecommunications infrastructure, the global economy as we know it today 
would simply not exist. Vice President Gore has recently recognized that not only 
is the telecommunications-enabled Global Information Infrastructure a vital under- 
pinning of world trade, the GII has the capacity “to extend knowledge and pros- 
perity to our most isolated inner cities, to the barrios, the favelas, the colonias and 
our most remote rural villages; to bring 21st Century learning and communication 
to places that don’t even have phone service today; to share specialized medical 
technology where there are barely enough family doctors today; to strengthen de- 
mocracy and freedom by putting it on-line, where it is so much harder for it to be 
suppressed or denied.” 

Privatization and liberalization of the world’s telecommunications markets will 
provide the most efficient and effective means of insuring the global telecommuni- 
cations infrastructure’s growth and enhancement. As experience in a number of 
countries now amply demonstrates, a liberalized market leads to significant in- 
creases in infrastructure development, more and better services, and lower prices 
for consumers. Moreover, a liberalized, modern telecommunications system should 



91 


increase capital investment, thereby strengthening and facilitating growth of a na- 
tion’s economy. 

It now appears that much of the world’s commerce in the future will be transacted 
over the Internet’s network of networks. A good deal of the communications will be 
of the multimedia variety which will require advanced, broadband telecommuni- 
cations services. Without liberalized open telecommunications markets, there will 
not be sufficient incentives to upgrade what is rapidly becoming in many parts of 
the world an inadequate, outdated telecommunications infrastructure. 

WTO Agreement on Basic Telecommunications Services 

The 1997 WTO Agreement on Basic Telecommunications Services (GBT), with its 
accompanying Reference Paper, truly represents a watershed event not only for the 
telecommunications industry, but also for the entire world economy. Seventy coun- 
tries participated and agreed to move in varying degrees toward full, technology- 
neutral, liberalization of their telecommunications sectors through market access, 
foreign investment and adoption of pro-competitive regulatory principles. 

The GBT was a landmark agreement in a number of ways. It was the first suc- 
cessful sectoral negotiation — the agreement dealt only with telecommunications. 
Changes in agriculture import quotas, for instance, could not be traded for conces- 
sions in telecommunications, insuring that all benefits of the agreement accrue to 
telecommunications alone. In addition, a Reference Paper containing pro-competitive 
regulatory principles was developed and was incorporated into a majority of the 
countries’ offers. This Reference Paper legally binds the countries into “how” they 
will implement many parts of the agreement. Thus, promulgation of regulations in 
accordance with the Reference Paper’s principles must be considered an integral 
part of a country’s implementation of the GBT. 

Under a very broad and essentially open-ended definition employed for the nego- 
tiations, basic telecommunications was considered any telecommunications transport 
network or services and the schedules of commitments cover a wide variety of serv- 
ices fitting this definition. Some examples of basic telecommunications include: voice 
telephone services, packet-switched data transmission services; circuit-switched data 
transmission services, telex, telegraph, facsimile and private leased circuit services, 
analog/digital cellular/mobile telephone services, mobile data service, paging, per- 
sonal communications services, satellite-based mobile services, fixed satellite serv- 
ices, VSAT services, gateway earth station services, teleconferencing, video trans- 
port and trunked radio system services. Categories of service included: local, long 
distance, international, wire-based, radio based, resale, facilities-based, for public 
use, and for non-public use (closed user groups). As discussed below, some rethink- 
ing of these categories of facilities and services may be in order. 

In sum, the GBT and accompanying Reference Paper represents a tremendous 
first step toward the ultimate goal of a fully open, competitive telecommunications 
market worldwide. A good deal of work remains to be done, however. In addition, 
it is important that new negotiations do not provide for countries to re-evaluate or 
back away from existing commitments. New negotiations should build on existing 
commitments. 

B. Classifieation 

Sector Classifications and Sub-Sectors (CPC Codes): 

Clearly, telecommunications market developments of the past few years warrant 
a reexamination of the applicability of the Standard Classification System last re- 
vised in 1991. It may be appropriate for countries to agree to a standardized set 
of services that are independent of the particular technology used to provide those 
services. 

C. Barriers 

Although a monopoly telecommunications environment provided a fairly reliable, 
working telephone system which served the world well for almost 100 years, most 
of the rapid technological developments of the past two decades have resulted from 
the increasingly competitive marketplace in a number of countries. Experience has 
shown that the more open the market, in terms of free entry and exit and the num- 
ber of competitors present, the more robust the competition and the better the result 
for consumers. 

Unfortunately, even in the wake of the GBT, most of the world’s telecommuni- 
cations markets still contain barriers that restrict access, curtail the scope of the 
playing field, or tilt it in a variety of ways. In accordance with their GBT commit- 
ments, many countries already have privatized their national telecommunications 
carriers, and others plan to do so in the near future. Privatization is an important 
step toward introducing competition into markets, but privatization by itself will not 



92 


produce an open and fair competitive environment. Whether the incumbent carrier 
is controlled by the government or is privately held, new entrants cannot effectively 
compete in the market without full liberalization. In order for competition to flour- 
ish, the regulator must be completely independent of the dominant carrier and must 
actively implement and enforce pro-competitive principles such as those enumerated 
in the GBT Reference Paper. 

Barriers remain even under the current commitments of some countries. Restric- 
tions on foreign ownership and requirements for local partners of var 3 dng descrip- 
tions hamper the ability to provide telecommunications services seamlessly in these 
countries or worldwide. In addition, requirements to use public networks and re- 
strictions on the use of leased lines provide barriers to true global market access. 
Nor is national treatment a reality in every country. 

The licensing schemes of many countries pose another significant barrier to the 
market and to full and fair competition. Restrictions on the number of licenses 
awarded per geographic area, onerous qualifications for licensees, exorbitant fees, 
and lack of transparency in the bidding and award process must be eliminated. In 
many cases, the totality of these requirements effectively limits participation to a 
handful of large carriers and prevents smaller, perhaps more responsive or innova- 
tive carriers from participating. 

Variations on the same theme are regulations which favor facilities-based pro- 
viders over resellers. Many countries that have otherwise committed to liberalize 
their telecommunications in the GBT have adopted policies designed to encourage 
infrastructure investment. For example, carriers may be required to implement a 
certain number of switches before they are permitted to interconnect with the in- 
cumbent. These sorts of requirements, while attempting to achieve an arguably 
laudable goal, act as a barrier by depriving consumers in these markets of a very 
valuable source of supply — resellers. 

As experience has shown in this country, resellers continue to play a vital role 
in the telecommunications marketplace. There are literally hundreds of these enti- 
ties, with their numbers increasing every month. These companies are usually small 
by comparison with the giant facilities-based carriers, but they are able to stay 
ahead of their much larger competitors by constantly introducing new pricing ar- 
rangements, new services, and innovations for consumers. 

Another barrier to competition in many countries is the lack of number port- 
ability. Number portability is essential in order for competition to develop because 
it allows customers to keep their telephone numbers when changing carriers. Where 
no number portability exists, residential consumers in particular are much more re- 
luctant to shift their business away from the incumbent, even when they are offered 
a significant price break. 

Even in the business market, the lack of portability acts as a major deterrent to 
competition. Businesses must incur significant expenses to reprint stationery and 
business cards and to inform customers, suppliers, and others that they have 
changed telephone numbers. For example, before portability was implemented in the 
domestic 800 service market, some competition did exist. However, soon after the 
introduction of portability, overall demand rose and prices dropped. 

D. Negotiating Objectives 

We urge the USTR to set the following negotiating objectives: 

• Update the 1991 Standard Classification System to emphasize services rather 
than the technology employed to deliver the services. 

• Expand and deepen the commitments of countries that agreed to partial liberal- 
ization in the GBT to include full liberalization and adoption of the Reference Paper, 
by a date certain in the near future. 

• Schedule commitments to full liberalization and adoption of the Reference 
Paper, by a date certain in the near future, of countries that are WTO Members 
but have not made commitments under the GBT. 

• Seek commitments to full liberalization and adoption of the Reference Paper by 
countries wishing to accede to the WTO. 

IX. Travel and Tourism 


A. Benefits of Liberalization 

The travel and tourism industry is the word’s largest industry, employing over 
230 million people worldwide, and is expected to grow to almost 320 million by 
2010. The travel and tourism industry is growing faster than world GDP growth. 
Its share of gross domestic product is expected to increase from about 11.6 percent 
in 1998 to 12.5 percent by 2010. The travel and tourism industry creates good jobs 



93 


spanning the spectrum from entry level to executives. It is clearly a driver of eco- 
nomic growth in the world. Liberalization of the industry will lead to faster industry 
growth, which will not only spur direct growth in the industry, but growth in re- 
lated industries such as manufacturing of transportation equipment, and building 
and related critical infrastructure development projects. Moreover, the travel and 
tourism industry represents sustainable and ecologically friendly development. 

B. Sector Status 

In general, the tourism and travel related services sector tends not to be heavily 
regulated and competition tends to be vigorous. There are, however, some signifi- 
cant exceptions to this broad generalization. 

C. Classification 

This sector includes hospitality, restaurants, travel agencies, tour operators, tour- 
ist guides services and other travel related services. The industry has developed 
since these classifications were drawn up, and the specific services covered under 
these broad categories need to undergo a thorough review and analysis to ensure 
that all services that should be covered are included. It should also be clarified that 
this sector includes travel reservation services and travel-related financial services, 
e.g. travelers checks and certain foreign exchange services, which are distinct from 
those covered under the banking, insurance and securities sector. (The tourism and 
travel related services sector does not include air or other transportation sectors, 
which are covered under the transport services sector.) 

D. Barriers 

Two of the most prevalent types of barriers fall under the rubrics of competition 
and investment, which could be addressed either horizontally or on a sectoral basis. 
(Needless to say, this industry, like many others, has substantial investments in 
trademarks and intellectual property, and has an interest in the outcomes on these 
and other general business concerns.) 

Competition 

Many countries impose significant restrictions, often only against foreign firms or 
enforce them in ways that favor domestic firms, on marketing and promotional ini- 
tiatives, including loyalty reward programs. 

Investment 

One hundred percent foreign ownership is often prohibited, and the form of doing 
business is commonly restricted or controlled. In addition, when operating through 
a franchise network, repatriation of profits, payment of royalties, and other similar 
issues frequently become problematic. 

Movement of Personnel 

A third horizontal issue is of particular concern to the industry, and that regards 
the freedom of movement for business personnel. The ability of travelers to move 
freely around the world is the lifeblood of the travel and tourism industry. The in- 
dustry has an abiding interest in liberalizing the restrictions, not only on tourists 
and the industry’s own management, but generally on businesses’ ability to locate 
the proper personnel in the locations where they are most needed. 

The other barriers are not covered in the general issues, though some do affect 
other sectors, as follows: 

Privacy 

Many companies in the travel industry maintain records regarding customers’ 
travel preferences in order to serve particular needs better. Many countries are pro- 
posing, or have already enacted, onerous restrictions on the flow of this type of in- 
formation. Many countries also require the disclosure of overseas spending by cus- 
tomers, thereby discouraging foreign travel by their citizens. 

Tourist Financial Services 

Many countries proscribe significant restrictions on the provision of financial serv- 
ices for travelers. Sale of travelers checks are often restricted to certain limited 
types of financial institutions, as are foreign currency exchange services even 
though they pose no risk to a country’s financial system. Finally, access to local 
ATM networks is occasionally prohibited. 



94 


Taxes on Overseas Spending 

Some countries penalize their citizens when they travel abroad by imposing taxes 
on overseas spending, often in ways that unfairly discriminate among payment 
products. One large South American country, for example, imposes a 2 percent 
transaction tax on credit and charge card spending abroad, but imposes no special 
taxes on cash purchases. As a large proportion of spending by international trav- 
elers is transacted through credit card payment systems, this tax discourages inter- 
national travel and tourism. 

E. Negotiating Objectives 

The U.S. objective should be the removal of as many of these barriers as possible. 
Unfortunately, it is too early in the process to identify firm industry-wide priorities. 


Chairman Crane. And next is Mr. Kleckner. 

STATEMENT OF DEAN KLECKNER, PRESIDENT, AMERICAN 
FARM BUREAU FEDERATION, PARK RIDGE, ILLINOIS 

Mr. Kleckner. Thank you, Mr. Chairman and Members of the 
Subcommittee. I am Dean Kleckner, and while I office in Park 
Ridge, Illinois, I am a north Iowa farmer, raising corn, soybeans 
and hogs on that farm, and one of the four ACTPN members sitting 
at the table today. Now there are three of us left. 

Agriculture is one of the few industries that consistently runs a 
trade surplus. The United States along with agriculture must be at 
the negotiating table in the next WTO Round with trade negoti- 
ating authority to ensure that this trade surplus continues. 

U.S. agriculture is now reeling from low commodity prices. Given 
an abundant global supply and a stable U.S. population rate, the 
job of expanding existing markets and opening new export markets 
for agriculture is more important than ever. Agriculture’s long- 
standing history of a trade surplus will not continue if agriculture 
is relegated to the sidelines as new negotiations commence. 

Personally, I am concerned that agriculture will be left behind if 
we do not structure the negotiations properly. The next round of 
negotiations should encompass all sectors as a comprehensive sin- 
gle undertaking. By this we mean all aspects of the negotiations 
should be concluded simultaneously in order to get the best results 
for all sectors. In other words, as was said in the Uruguay round, 
agreeing it should be here, too, nothing is agreed to until every- 
thing is agreed to. 

I have submitted for the record a copy of the Seattle Round Agri- 
culture Committee’s policy objectives for the next round. The Farm 
Bureau chairs this coalition, which consists of 80 agriculture orga- 
nizations representing producers as we are, also processors and ag- 
ribusinesses. U.S. agriculture is united in its views for the next 
round through this coalition. The very first principle of this coali- 
tion is that of a single undertaking. 

The United States will have the greatest success in the next 
round of trade talks if negotiations are concluded as a single under- 
taking without the possibility of an “early harvest” or provisional 
implementation of early agreements. We are very concerned — very 
concerned about concluding early results for any sector, recognizing 
in doing so will require devoting substantial resources and will 



95 


likely sidetrack the important structural issues that need to be ad- 
dressed in order for this round to be completed in 3 years. 

Now, eight quick items. We have set a goal to complete the agri- 
culture negotiations by the end of 2002, 3 years. Our producers 
need results in a timely manner. Two, we call for the elimination 
of export subsidies by all WTO members by a date certain and as 
soon as possible. Three, we believe that new negotiations must in- 
clude a recommitment to binding agreements to resolve sanitary 
and phytosanitary issues based on scientific principles in accord- 
ance with the WTO Agreement on Sanitary and Phytosanitary 
Measures; that is, the SPS agreement. The provisions of the Uru- 
guay round agreement are sound and do not need to be reopened, 
the SPS agreement. 

Four, the next round should result in tariff equalization and in- 
creased market access. By requiring our trading partners to elimi- 
nate tariff barriers within specified timeframes, we need to adopt 
a framework that was used in the Uruguay round wherein there 
are no product or policy exceptions to such tariff reductions. All 
WTO member countries should reduce tariffs, both bound and ap- 
plied, in a manner that provides commercially meaningful access 
on an accelerated basis. 

Five, quickly here, regarding state trading enterprises, or STEs, 
we must impose disciplines on STEs that distort the flow of trade 
in world markets. 

Six, and very important, Mr. Pepper mentioned this, but we 
must ensure market access for biotechnology products produced 
from GMOs, genetically modified organisms. All WTO member 
countries should reaffirm the principles of the WTO SPS Agree- 
ment, provisions which we believe cover trade in GMOs. And I 
might say six “a” here, the United States should not agree to a 
Working Group on Bioengineered Products at the WTO. The forma- 
tion of such a group will derail the resolution of trade issues con- 
cerning bioengineered product policy and not likely result in a con- 
sensus approach. 

Seven, we must end the use of all nontariff barriers to trade. 

And, last, eight, our negotiators must make changes to trading 
practices that would facilitate and shorten its dispute resolution 
procedures and processes. 

In summary, Mr. Chairman, we support liberalization of global 
agriculture markets that will result in the true reform of the cur- 
rent trading regime and bring about fair trade for our producers. 
This is our opportunity to address the trade imbalances that ham- 
per our domestic producers from both an import and an export per- 
spective. The U.S. must demonstrate leadership in setting the 
agenda for this round of trade talks and is submitting proposals for 
the structure of the negotiations. 

Mr. Chairman, I thank you. 

Chairman Crane. Thank you. 

[The prepared statement follows:] 

Statement of Dean Kleekner, President, Ameriean Farm Bureau 
Federation, Park Ridge, Illinois 

Mr. Chairman, members of the Committee, I am Dean Kleekner, president of the 
American Farm Bureau Federation and a hog, corn and soybean farmer from Iowa. 
I appreciate the opportunity to testify before you today regarding negotiating objec- 



96 


tives for agriculture in the next round of trade talks in the World Trade Organiza- 
tion. 

The American Farm Bureau is the nation’s largest organization of agricultural 
producers. Farm Bureau represents over 4.8 million member families in the United 
States and Puerto Rico. Our members produce every commodity grown in America 
and depend on access to customers around the world for the sale of over one-third 
of our production. Agriculture is one of the few U.S. industries that consistently 
runs a trade surplus, posting a positive balance of trade every year since 1960. The 
United States along with agriculture, must be at the negotiating table in the next 
WTO round in a meaningful way, with trade negotiating authority, to ensure that 
this trade surplus continues. 

The ability of U.S. agriculture to gain and maintain a share of global markets de- 
pends on many factors, including obtaining strong trade agreements that are prop- 
erly enforced, enhancing the administration’s ability to negotiate increased market 
access for U.S. agriculture and building in the necessary changes to the WTO dis- 
pute settlement process to ensure timely resolution of disputes. 

When Congress passed the 1996 Freedom to Farm Act, it phased out farm price 
supports, making U.S. agriculture more dependent on the world market. American 
farmers and ranchers produce an abundant supply of commodities far in excess of 
domestic needs and their productivity continues to increase. Exports are agri- 
culture’s source of future growth in sales and income. 

As you are well aware, U.S. agriculture is reeling from low commodity prices. 
Given an abundant domestic supply and a stable U.S. population rate, the job of 
expanding existing market access and opening new export markets for agriculture 
is more important than ever. Agriculture’s longstanding history of a balance of trade 
surplus will not continue if we are relegated to the sidelines as new negotiations 
in agriculture commence. 

Moreover, global food demand is expanding rapidly and more than 95 percent of 
the world’s consumers live outside tJ.S. borders. Despite significant progress in 
opening U.S. markets, agriculture remains one of the most protected and subsidized 
sectors of the world economy. In addition, U.S. agricultural producers are placed at 
a competitive disadvantage due to the growing number of regional trade agreements 
among our competitors. 

U.S. leadership of the global trade liberalization agenda has paid off for American 
agriculture. If the United States now leaves it to others to form new trade pacts 
and write future rules for trade, U.S. producers, processors, and exporters will be 
severely disadvantaged in the competitive marketplace of the 21st century. We are 
counting on this administration and Congress to ensure that U.S. farmers and 
ranchers have a significant place at the negotiating table, armed with the tools they 
need, including trade negotiating authority. 

WTO Ministerial 

As you know, the Seattle Ministerial Conference will serve as the kickoff for the 
new negotiations on agriculture and other sectors in the WTO. As the host country 
for this ministerial, the United States and its trade policies will be in the spotlight. 
Given the economic turmoil and technical barriers being experienced in many of our 
important export markets, the launching of new negotiations to further open mar- 
kets has never been more important. 

The United States has an unprecedented opportunity to lead these negotiations 
to a successful outcome and should play a central role in influencing the debate 
early regarding the structure of the negotiations. Specifically, the administration 
should take a stand now on a number of different issues, including what sectors will 
be negotiated in this next round and what approach will be used for the negotiations 
(formula approach versus request-offer, or some combination thereof). These nego- 
tiations are too important to agriculture, and other sectors, to let other WTO mem- 
ber countries dictate the negotiating agenda. 

Objectives for the Next Round 

Higher living standards throughout the world depend upon mutually beneficial 
trade among nations. We urge that trade policies be developed that promote the 
growth in world trade. 

To this end, U.S. negotiators must comprehensively address high tariffs, trade-dis- 
torting subsidies, and other restrictive trade practices in the new round of negotia- 
tions on agriculture. 

The American Farm Bureau Federation supports expediting action on the next 
round for agriculture in the WTO. Our market is the most open in the world. We 
cannot sit idly by while our competitors trade openly in our market, but deny us 



97 


access to their markets on equal terms. We must begin the negotiations and con- 
clude them as early as possible to put U.S. agricultural producers on a level playing 
field with the rest of the world. To this end, we have set a goal to complete the 
agricultural negotiations by the end of 2002 to ensure that our producers gain in- 
creased market access in a timely manner. 

First and foremost, the next round of negotiations should encompass all sectors 
as a comprehensive, single undertaking. By this we mean that all aspects of the ne- 
gotiation should be concluded simultaneously in order to get the best results for all 
sectors. The United States will make the greatest gain in the next round of trade 
talks if negotiations are concluded as a single undertaking without the possibility 
of an “early harvest” or provisional implementation of early agreements. As you are 
aware, this issue has attracted significant attention in recent weeks given the ad- 
ministration’s desire to achieve early tariff reductions for the eight Asia Economic 
Pacific Cooperation (APEC) sectors. We are very concerned about concluding early 
results for any sector recognizing that doing so will require a substantial devotion 
of resources to accomplish and will likely sidetrack the important structural issues 
that need to be addressed in order for this round to be completed in three years. 

Second, we must call for the elimination of export subsidies by all WTO member 
countries. Our producers cannot compete against the mountain of spending by our 
primary competitors, like the European Union (EU). The EU spends in excess of 
eight times the level of domestic and export subsidies as the United States. Data 
from the U.S. Department of Agriculture and the European Commission show that 
total EU domestic and export subsidy expenditures for 1997 exceeded $46 billion 
compared to $5.3 billion spent by the United States. This level of spending distorts 
world trade and undermines U.S. producers’ competitiveness in vital export mar- 
kets. 

Third, we believe that the new negotiations must include a recommitment to bind- 
ing agreements to resolve sanitary and phytosanitary issues based on scientific prin- 
ciples in accordance with the WTO Agreement on Sanitary and Phytosanitary Meas- 
ures (SPS Agreement). The provisions of the Uruguay Round SPS Agreement are 
sound and do not need to be reopened. The United States has successfully litigated 
several SPS cases that underscore the strength of this agreement. Cases have now 
been tried that set precedence in each of the three areas of the SPS Agreement. For 
example, the successful U.S. litigation of the EU beef ban strengthens the provisions 
regarding human health, the Japan varietal testing case underscores aspects re- 
garding plant health, and the Australia salmon case bolsters the animal health text 
of the SPS Agreement. Any change to the SPS Agreement would expose the sound 
scientific principles now embedded in its provisions — changes that the EU would rel- 
ish making to restrict rather than facilitate trade. 

Fourth, the next round should result in tariff equalization and increased market 
access by requiring U.S. trading partners to eliminate tariff barriers within specified 
time frames. Our producers compete openly in their own domestic market with their 
foreign competitors, but are shut out of export markets due to prohibitively high tar- 
iffs. We need to correct this imbalance for our farmers and ranchers. All WTO mem- 
ber countries should reduce tariffs, both bound and applied, in a manner that pro- 
vides commercially meaningful access on an accelerated basis. 

Fifth, we must impose disciplines on state trading enterprises (STEs) that distort 
the flow of trade in world markets. Every effort should be made to craft an agree- 
ment that sheds light on the pricing practices of STEs and ends their discriminatory 
practices. Our producers have lost too many sales in third country markets due to 
the noncompetitive, nontransparent operations of STEs. 

Sixth, we must ensure market access for biotechnology products produced from ge- 
netically modified organisms (GMOs). Significant delays and a lack of transparency 
in the regulatory approval process for GMOs in the EU have heightened the need 
for science based, transparent provisions governing bioengineered products. We can- 
not continue to be held hostage to the EU’s nontransparent, discriminatory proce- 
dures that deny market access for our GMO products. All WTO member countries 
should reaffirm the principles of the WTO SPS Agreement, provisions which we be- 
lieve cover trade in GMOs. Most importantly, the United States should not agree 
to a working group on bioengineered products in the WTO. The formation of such 
a group will derail the resolution of trade issues concerning bioengineered products 
and will not likely result in a consensus approach. 

Next, we must end the use of all nontariff barriers to trade. There are several 
practices that have been employed by our trading partners to shut out competition 
in their domestic markets. These practices include, but are not limited to, domestic 
absorption requirements, discriminatory licensing procedures, price bands, and the 
administration of tariff rate quotas that prevent true competition. Provisions to ad- 



98 


dress these and other nontariff barriers should be written into the new agreement 
on agriculture. 

Finally, our negotiators must make changes to trading practices that would facili- 
tate and shorten dispute resolution procedures and processes. The process for a 
WTO dispute settlement case typically runs three years, if the WTO ruling is imple- 
mented. We have seen in both the EU banana and EU beef cases that compliance 
is not always assured. Our trading partners cannot be allowed to unilaterally weak- 
en the very principles that we negotiated in the Uruguay Round Agreement. The 
expedited dispute settlement process for perishable agricultural products outlined in 
the WTO Dispute Settlement Understanding should be modified to allow the proce- 
dure to be used if the aggrieved party requests it. Currently, the WTO requires that 
both parties in a case agree to use this procedure. As a result, it has never been 
used. This simple change should be enacted promptly. Doing so would address the 
fundamental problem of a dispute settlement procedure that requires too much time 
and prevents market access for several marketing seasons before a resolution is 
reached. 

Concerning environment and labor issues in the upcoming trade negotiations, we 
believe that such matters should only be addressed in a manner that facilitates 
rather than restricts trade. We cannot allow the economic prosperity of our nation, 
and that of our agricultural producers, to be used as a weapon for nations that dis- 
agree with our values. 

In summary, we support liberalization in global agricultural markets that will re- 
sult in true reform of the current trading regime and bring about fair trade for our 
producers. The United States has a tremendous opportunity before it to shape the 
agenda for the next round and should seize this chance to demonstrate to the world 
that we are committed to opening new markets for U.S. agriculture. This is our op- 
portunity to address the trade imbalances that hamper our domestic producers, 
from both an import and export perspective. Given the economic turmoil being expe- 
rienced in many of our important export markets, the launching of new negotiations 
to further open markets has never been more important. 

Seattle Round Agricultural Committee (SRAC) 1999 WTO Policy Statement 

The U.S. agricultural and food sector supports the launching of a comprehensive 
round of multilateral trade negotiations that includes all goods and services, con- 
tinues to reform agricultural and food trade policy, promotes global food security 
through open trade, and increases trade liberalization in agriculture and food. Policy 
and process objectives should include: 

•Conclusion with a single undertaking that encompasses all sectors (i.e., no early 
harvest). 

•Adoption of the Uruguay Round framework for the 1999 agricultural negotiations 
to ensure that there are no product or policy exceptions. 

•Establishment of a three-year goal for the conclusion of the negotiations (by De- 
cember 2002). 

•Elimination of export subsidies and tightening of rules for circumvention of ex- 
port subsidies. 

•Elimination of nontariff barriers to trade. 

•Transitioning countries to provide an increasing portion of total domestic support 
for agriculture in a decoupled form, as the United States has already done under 
the FAIR Act. 

•Commercially meaningful reduction or elimination of tariffs (bound and applied) 
and mutual elimination of restrictive tariff barriers on an accelerated basis. In addi- 
tion, the administration of tariff-rate quotas (TRQs) must be improved. 

•Elimination of State Trading Enterprises (STEs) or the adoption of disciplines 
that ensure operational transparency, the end of discriminatory pricing practices, 
and competition for STEs. 

•Maintaining sound science and risk assessment as the foundation of sanitary and 
ph 3 dosanitary measures. 

•Ensuring market access for products of biotechnology, with the regulation of 
these products based solely on sound science. 

•Accelerating resolution of trade disputes and prompt enforcement of panel deci- 
sions. 

•Providing food security for importing nations by avoiding sanctions on food ex- 
ports combined with a WTO commitment not to restrict or prohibit the export of 
agricultural products. 

•Addressing labor and environment issues in a manner that facilitates rather 
than restricts trade. 



99 


•Establishing WTO rules for developing 
tions using objective economic criteria. 

Ag Processing Inc. 

Agricultural Retailers Association 

American Cotton Shippers Association 
American Crop Protection Association 
American Farm Bureau Federation 
American Feed Industry Association 
American Potato Trade Alliance 
American Soybean Association 

American Sugar Alliance 
American Vintners Association 
Animal Health Institute 
Archer Daniels Midland Company 
Biotechnology Industry Organization 
Bryant Christie Inc. 

Bunge Corporation 
CF Industries, Inc. 

California Table Grape Commission 

Cargill, Incorporated 
Chicago Board of Trade 
Chocolate Manufacturers Association 
Coalition for a Competitive Food and 
Agricultural System 
ConAgra, Inc. 

Continental Grain Company 
Corn Rehners Association 
Distilled Spirits Council of the United 
States 

Farmland Industries, Inc. 

Florida Phosphate Council 
Food Distributors International 
Association 
Gold Kist, Inc. 

Grocery Manufacturers of America 
Independent Community Bankers of 
America 

International Dairy Foods Association 
Kraft Foods 

Louis Dreyfus Corporation 
Monsanto Company 

National Association of Animal Breeders 
National Association of State 
Departments of Agriculture 
National Association of Wheat Growers 
National Barley Growers Association 
National Cattlemen’s Beef Association 


countries to graduate to full WTO obliga- 

National Chicken Council 
National Confectioners Association of the 
United States 

National Corn Growers Association 
National Council of Farmer Cooperatives 
National Cotton Council of America 
National Food Processors Association 
National Grain and Feed Association 
National Grain Sorghum Producers 
Association 

National Grain Trade Council 
National Grange 

National Milk Producers Federation 
National Oilseed Processors Association 
National Pork Producers Council 
National Renderers Association 
National Sunflower Association 
National Turkey Federation 
North American Export Grain 
Association 

North American Millers’ Association 
Northwest Horticultural Council 
Pacific Northwest Grain and Feed 
Pet Food Institute 
Pioneer Hi-Bred International, Inc. 
Ralston Purina Company 
Snack Food Association 
Sunkist Growers 
Sweetener Users Association 

The Fertilizer Institute 
The lAMS Company 
Transportation, Elevator, & Grain 
Merchants Association 
USA Poultry & Egg Export Council 
USA Rice Federation 
U.S. Apple Association 

U.S. Canola Association 
U.S. Grains Council 
U.S. Dairy Export Council 
U.S. Meat Export Federation 
U.S. Poultry & Egg Association 
U.S. Rice Producers Association 
U.S. Wheat Associates, Inc. 

United Egg Association 
United Egg Producers 
Washington State Potato Commission 
World Perspectives Inc. 


Chairman Crane. Mr. Dillon. 

STATEMENT OF JOHN DILLON, CHAIRMAN AND CHIEF EXECU- 
TIVE OFFICER, INTERNATIONAL PAPER, PURCHASE, NEW 
YORK, ON BEHALF OF THE AMERICAN FOREST & PAPER AS- 
SOCIATION 

Mr. Dillon. Thank you, Mr. Chairman. I am John Dillon of 
International Paper, and I am pleased to be here today rep- 
resenting the American Forest and Paper Association. 



100 


U.S. forest products industry accounts for $230 billion in annual 
sales and employs about 1.5 million Americans. Basically, as you 
know, wood and paper products are essential elements of our 
standard of living and are derived from a renewable resource, 
which we are committed to managing on a sustainable basis. 

For our industry, the WTO Ministerial represents the last oppor- 
tunity to level the competitive playingfield for our products. The 
U.S. market has an open door to foreign competitors in forest prod- 
ucts, while U.S. producers must scale high tariff walls and other 
barriers to compete abroad. Starting with the Uruguay round, we 
have sought to level the playingfield through reciprocal trade elimi- 
nation agreements. That objective was only partially realized. Con- 
tinued disparity in market access combined with foreign capacity 
growth and weak demand abroad have resulted in the actual dete- 
rioration in the trade balance of our sector since the Uruguay 
round. 

We are seeing explosive growth in forest products capacity in 
emerging economies like Indonesia, China, Korea and Brazil. They 
may claim to be developing economies, but the capacity they are 
building is world class, and, in fact, is finding its way in a major 
way into our markets. 

For instance, in 1998, paper imports from Asia increased by 73 
percent. In total, foreign imports of paper products increased by 
more than $1 billion in 1998, while U.S. exports declined by almost 
$350 million. This alarming trend of increase in imports has heen 
evident throughout the decade of the nineties. 

Turning to wood products, since 1994, U.S. exports of wood prod- 
ucts have dropped by 20 percent, while imports have increased by 
33 percent. In total, between 1994 and 1998, the deficit in our sec- 
tor has jumped from $3 billion to over $9 billion, in excess of a tri- 
pling. The significance of these numbers is the effect on jobs. These 
jobs are some of the hest paying in our communities. For instance, 
papermill jobs pay about $20 an hour, which is $7 an hour more 
than other manufacturing jobs. In 1998, a year of record demand 
for our products, paper industry employment declined by 18,000 
jobs. 

Our industry has made substantial capital investments to mod- 
ernize our operations and compete on a global scale. At the same 
time our relative cost position has changed in part due to public 
policy affecting fiber supply, environmental costs and taxes. For ex- 
ample, the U.S. tax rate on corporate forestry is 55 percent com- 
pared to 22 percent in Finland and 7 percent in Indonesia. 

Clearly, the WTO will not change tax or environmental policy, 
but it can finish the job we started with the Uruguay round. The 
administration has proceeded on Congress’ authorization to accel- 
erate and expand reciprocal tariff elimination. Last November, and 
again last month, the APEC ministers agreed to work toward an 
agreement accelerating tariff reductions by the WTO Ministerial in 
November 1999. The accelerated trade liberalization proposal 
would eliminate tariffs on paper products between the years 2000 
and 2002, and on wood products between 2002 and 2004. An agree- 
ment on the ATL package would boost global trade and benefit pro- 
ducers and consumers around the world. However, that objective is 
threatened by the Japanese Government’s continued refusal to 



101 


agree to trade elimination on wood products and by European re- 
sistance to conclude any agreement before launching a new round 
of negotiations. 

Immediate action in Seattle is essential. Delaying the results will 
mean continued erosion of our competitive position in world mar- 
kets. With the APEC economies prepared to lead the way in ad- 
vancing the pace of tariff liberalization, an agreement on the ATL 
at the outset of the new round would provide important momentum 
for further opening global markets. The WTO must demonstrate 
that it is capable of eliminating barriers to trade on a continuing 
basis and can do so by concluding the ATL agreement in Seattle. 
We urge your support and thank you for listening to our stories. 
Chairman Crane. Thank you. 

[The prepared statement follows:] 

Statement of John Dillon, Chairman and Chief Exeeutive Offieer, Inter- 
national Paper Purehase, New York, on behalf of the Ameriean Forest & 

Paper Assoeiation 

Mr. Chairman, Members of the Committee: 

I am John Dillon, Chairman and CEO of International Paper, and I am pleased 
to be here today representing the American Forest and Paper Association. Inter- 
national Paper is the largest forest products company in the world with $24 billion 
in annual sales, operations in nearly 50 countries and close to 100,000 employees. 
In addition. International Paper owns and manages nearly 7.5 million acres of forest 
land in the United States. 

The U. S. forest products industry, which accounts for $230 billion in annual sales 
and employs 1.5 million American workers, comprises seven percent of manufac- 
turing shipments. To put this in perspective, the U.S. forest products industry em- 
ploys about as many people as the data processing and computer services industry. 
While Internet-based advertising totaled $1.9 billion in 1998, print-based adver- 
tising generated $111 billion in revenues. Basically, wood and paper products are 
essential elements of our standard of living — from paper for daily information to 
textbooks to decorative products; from packaging to keep products safe and prevent 
spoilage; and from lumber and panel materials used in over 90 percent of American 
homes to wood-based furniture and cabinetry. These products are derived from a 
unique renewable resource which the U.S. forest products industry is committed to 
managing on a sustainable basis. 

For our industry, the World Trade Organization (WTO) Ministerial meeting in Se- 
attle represents the most significant, and possibly the last, opportunity to secure our 
ability to participate in fast-growing global markets from a U.S. manufacturing 
base. For too many years, the U.S. market has provided an open door to our foreign 
competitors, while U.S. producers have had to scale high tariff walls and other bar- 
riers to compete in foreign markets. Our foreign competitors have used those years 
and those barriers to create a substantial global advantage by increasing their pro- 
ductive capacity and exploiting our market while denying us equivalent market op- 
portunities. 

For the last decade, beginning with the Uruguay Round, we have sought to level 
the playing field by pursuing a global free trade sector in forest products through 
reciprocal tariff elimination agreements. That objective was only partially realized 
in the Uruguay Round Agreement, as Japan blocked an agreement in wood prod- 
ucts, and Europe delayed the phase-out on paper tariffs to ten years. These actions 
provided another decade of protection to some of our strongest competitors in global 
markets. 

As a consequence, we have actually seen the global trade balance in the forest 
products sector decline since the conclusion of the Uruguay Round Agreement. In 
total, between 1994 and 1998 the trade deficit in our sector jumped from $3 billion 
to $9.4 billion, a tripling in this short time period. 

On the solid wood side of the industry, global production of lumber and panel 
products grew about 5 percent between 1994 and 1998, while U.S. production in- 
creased only about 3 percent. Thus, the U.S. share of global lumber production has 
declined by 1-2 percent since 1994. At the same time, U.S. exports of wood products 
have dropped from $7.2 billion to $5.8 billion, or a 20 percent decline; whereas im- 
ports of lumber and wood products have grown from $10 billion to $13.3 billion, or 
a 33 percent increase. 



102 


On the paper side, global production of paper and paperboard has increased about 
12 percent since 1994, while U.S. production has increased just 6 percent. The U.S. 
share of world production of paper and paperboard has declined from 30.1 percent 
to 28.5 percent. On a tonnage basis, U.S. exports of pulp, paper and paperboard 
grew 8.6 percent from 1994-1998, but dropped 9.3 percent in 1997-98, while im- 
ports increased 12 percent. 

Just as we saw strong growth in European capacity in the early 1990s, we are 
now looking at explosive growth in forest products capacity in emerging economies 
such as Indonesia, China, Korea, and Brazil. And while these countries may claim 
to be developing economies, the capacity they are building is world-class — we are 
not talking about backyard paper and saw mills, but some of the largest, state-of- 
the-art mills in the world. 

The situation has become more acute in the last two years as a consequence of 
the Asian financial crisis. As Asian economic growth collapsed, the rapid buildup in 
capacity that was anticipated to serve the rapidly growing Asian economies has re- 
sulted in increased shipments to the U.S. market. Imports of paper from Indonesia, 
for example, increased by 1800 percent during 1998. Imports from all Asian coun- 
tries have increased 73 percent. At the same time, the reduction in demand in Asia, 
and lack of strong growth in the rest of the world, has resulted in diversions of prod- 
ucts from other regions to the U.S. market — European imports are up 12 percent; 
Canadian imports are up 5.3 percent. In total, U.S. imports of paper and paperboard 
have increased by more than $1 billion in 1998, while U.S. exports have declined 
by $335 million. 

The result has been a significant erosion in prices and profitability for U.S. pro- 
ducers, and consequently a reduction in U.S. production. Since the beginning of 
1998, the U.S. forest products industry has indefinitely or permanently shuttered 
1.4 million metric tons of market pulp and 2.1 million metric tons of paper and pa- 
perboard capacity. 

The real significance of these numbers is the effect on U.S. jobs. In 1998, total 
paper and allied products industry employment declined by 17,800 jobs, or 2.6% — 
the largest single year decline since 1983. These are higher paying jobs than the 
manufacturing average and are most often located in rural communities that are 
heavily dependent on the forest products industry. At an average wage of $20.41 
per hour, paper mill workers earn nearly $7.00 an hour more than all other private 
sector production workers, whose average hourly wage is $13.14. 

Future growth opportunities for our products are highest in foreign markets 
where demand is expected to grow more rapidly than in the more mature markets 
in the U.S. and Europe. However, if we are unable to secure a market position in 
Asian and Latin American countries in the near future because of prohibitive mar- 
ket access barriers, those markets will be locked up by emerging competitors and 
our natural competitive advantage in this sector will have been sacrificed to unequal 
terms of trade set by governments. 

It is for this reason that we have been so insistent on accelerating and expanding 
the reciprocal tariff elimination agreement from the Uruguay Round and why we 
are so determined to see a global agreement reached at the Seattle Ministerial. Im- 
mediate action is essential to the future success and growth of the U.S. forest prod- 
ucts industry. 

Six years ago. Fortune magazine evaluated U.S. industries on their ability to com- 
pete globally and gave only two “A” ratings: pharmaceuticals and forest products. 
Today, that competitive edge in the forest products sector is eroding as a con- 
sequence of public policy impacts on our domestic industry and because of the rapid 
expansion of foreign competitors, often with the active support of their governments. 

During the 1980s and early 1990s, our industry made substantial capital invest- 
ments to modernize and upgrade our equipment and operations to ensure that we 
would be able to compete on a global scale. In fact, in terms of net value of plant 
and equipment per dollar of sales, the paper industry is more than twice as capital 
intensive as the all-manufacturing average. 

However, also during that time, our relative cost position changed, in part due 
to public policy actions. The 75 percent reduction in timber from public lands has 
resulted in increased fiber costs, which make up 30-70 percent of our production 
costs. At the same time, our foreign competitors often enjoy government-supplied 
timber concessions at below-market rates, or benefit from export restrictions which 
artificially reduce their cost of fiber. 

Environmental compliance costs have increased significantly, both for forest man- 
agement and for manufacturing processes. Last year, the Environmental Protection 
Agency (EPA) imposed the most costly regulation ever on a single industry — the 
Cluster rule — which will increase capital costs for the industry by nearly $3 billion. 
Costs for International Paper alone will exceed $500 million. Additional regulations 



103 


which EPA is now considering for our industry could add another $10 billion in cap- 
ital costs over the next 10 years. AF&PA estimates that environmental expenses ac- 
counted for 13 percent of capital spending in the last decade, and will account for 
as much as 28 percent of capital spending in the next five years. Unfortunately, in 
many cases these expenditures produce little or no significant environmental im- 
provement and certainly do not contribute to increased productivity or production. 
In addition, these costs are not shared equally by many of our foreign competitors, 
which face neither the scope of direct regulatory costs, nor the strict enforcement 
regime that exists in the U.S. We are proud of our environmental record, but there 
must be a reasonable balance between environmental costs and benefits, and we 
need to ensure that U.S. producers are not left at a competitive disadvantage be- 
cause of disparate environmental requirements. 

We also face a cost disadvantage as a consequence of tax policy. A recent study 
of comparative teix rates revealed that the U.S. forest products industry has the sec- 
ond highest effective tax rate on corporate forestry and timber investment when 
compared with any of our major foreign competitors: The U.S. tax rate is 55 percent 
vs. Japan at 36 percent; Finland at 22 percent; and Indonesia at 7 percent. Simi- 
larly, the effective tax rate on paper manufacturing in the U.S., at 62 percent, com- 
pares unfavorably to Japan at 57 percent; Finland at 36 percent; and Indonesia at 
33 percent. In both Finland and Indonesia, almost all reforestation and silvicultural 
costs currently may be deducted. In the U.S., most reforestation costs must be cap- 
italized until harvesting begins. The tax bill that the House recently approved will 
help somewhat, but what would really help level the competitive field for us would 
be a significant reduction in the corporate capital gains rate applied to timber and 
a permanent lifting of the cap on the amortization of reforestation expenses. 

Of immediate interest to this committee and this hearing is the impact of trade 
policies on our industry and the opportunity presented by the upcoming ministerial 
to improve our competitive position. With our natural advantages in abundant fiber 
supply, developed infrastructure, skilled workforce, capital investments, and world- 
scale operations, we should enjoy a comparative, competitive advantage in world 
markets for our wood and paper products. However, while the U.S. market has been 
open to the rest of the world, the maintenance of foreign barriers to our products 
has significantly eroded our competitive position and threatens the future growth 
and success of this industry. 

In previous trade negotiations, U.S. tariffs on wood and paper products have been 
traded away for concessions in other sectors leaving us with a big market open to 
foreign competition and little leverage to gain equivalent access to foreign markets. 

During the Uruguay Round, we initiated and led the Zero-for-Zero Tariff Initia- 
tive, designed to provide comparable global market access opportunities in several 
globally competitive sectors. As noted earlier, that initiative was not fully achieved 
in our sector: Japan blocked agreement on reciprocal tariff elimination in wood prod- 
ucts and Europe delayed achievement of zero tariffs on paper products for 10 years. 
Importantly, developing countries did not participate in the Zero-for-Zero Initiative. 
These countries represent the most rapidly growing markets for our products and 
have become significant competitors in our industry. 

The situation we faced then is now compounded. In short, the distortions in mar- 
ket access around the world and differences in government policies affecting forest 
products industries are leading immediately and directly to tbe transfer of U.S. pro- 
duction and jobs to other countries. If this situation is not reversed in the near 
term, the opportunity for our industry to export from the U.S. to growing economies 
in Asia and Latin America will be lost for good as those markets are claimed by 
low-cost, protected competitors. 

The Congress has authorized the Administration to continue to pursue accelera- 
tion and expansion of reciprocal tariff elimination in the zero-for-zero sectors as a 
priority matter. The Administration has worked with our trading partners in APEC 
to advance an accelerated tariff liberalization package for 8 sectors — including forest 
products — first through the Asia Pacific Economic Cooperation (APEC) forum and 
now through the WTO. Last November, and again last month, APEC ministers 
agreed to work toward an agreement by the time of the WTO Ministerial in Seattle. 
The Accelerated Tariff Liberalization (ATL) proposal for forest products would elimi- 
nate tariffs on paper products between 2000 and 2002 and on wood products be- 
tween 2002 and 2004, with limited flexibility on end dates and end rates. In addi- 
tion to forest products, the ATL package includes fish, chemicals, medical equip- 
ment, energy, toys, gems and jewelry, and environmental goods and services. 

It is significant that the APEC economies agreed on the importance of advancing 
liberalization in these sectors. It is also important to note that China, in the WTO 
accession negotiations, would significantly reduce tariffs on paper and wood prod- 



104 


ucts and, on acceding to the WTO, would participate in a WTO agreement on tariff 
elimination. 

An agreement in Seattle on the ATL sectors could produce a significant boost to 
global trade, benefiting producers and consumers around the world. However, that 
objective is threatened by the continued refusal of the Japanese government to 
agree to tariff elimination on wood products, and by European resistance to conclude 
any sectoral agreement in advance of launching a new round of multilateral trade 
negotiations. 

Delaying results in our sector until the conclusion of a new round, at best within 
three years and likely to be much longer than that, will mean continued erosion of 
our competitive position in world markets and continued transfer of forest products 
jobs to other countries. This is an unacceptable outcome. It is comparable to allow- 
ing a healthy patient with a flesh wound to bleed to death because the doctors can- 
not agree on whether to apply a tourniquet or suture the wound. 

We cannot allow the Japanese and Europeans to continue to defer results in sec- 
tors like forest products, where there is strong global competition. Both Europe and 
Japan have well developed forest products industries and world-class production is 
being built in emerging countries. 

There will be some vocal opposition from groups in Seattle about the impact of 
globalization and world trade on people’s lives. We cannot stop globalization of the 
world economy; we have to recognize it and adapt to it to survive and prosper. We 
can, however, work to ensure that the terms under which globalization occurs are 
at least fair for American companies and workers and that domestic and foreign 
barriers to production, trade, and economic growth are eliminated. 

Artificial barriers that distort trade and economic development stifle not only com- 
petition, but also innovation and economically-sustainable growth, and lead to recip- 
rocal barriers which further distort and stifle economic development and growth. 

Negotiations should be based on a recognition that reciprocal open markets create 
economic growth and new market and job opportunities for all participants. That 
is the challenge and the opportunity facing the trade ministers in Seattle. 

The WTO must demonstrate that it is capable of continuous progress in elimi- 
nating barriers to trade. The most tangible demonstration of that capability would 
be to conclude an ATL agreement at the Ministerial which would produce imme- 
diate benefits for producers and consumers around the world in these eight sectors. 
That would serve as a model and provide some important momentum for the launch 
of a new round of trade liberalization negotiations. 

Conversely, failure to conclude the ATL agreement in Seattle could lead to further 
loss of growth opportunities in important sectors of the U.S. economy and further 
erosion in public support for efforts to achieve a more open world trading system. 

I hope the trade ministers seize this opportunity to demonstrate the vitality and 
value of the World Trade Organization as a body which can and does produce mean- 
ingful economic results through eliminating trade barriers, beginning with an agree- 
ment in Seattle on the Accelerated Tariff Liberalization package. 


Chairman Crane. And our last witness, Mr. Van Putten. 

STATEMENT OF MARK VAN PUTTEN, PRESIDENT AND CHIEF 
EXECUTIVE OFFICER, NATIONAL WILDLIFE FEDERATION 

Mr. Van Putten. Thank you, Mr. Chairman and Members of the 
Subcommittee. I appreciate this opportunity to testify on behalf of 
the National Wildlife Federation, America’s largest not-for-profit 
conservation advocacy and education organization with over 4 mil- 
lion members and supporters in 46 States and territorial affiliates. 

For nearly 10 years, NWF has been intimately involved in the 
development of U.S. trade policy. This makes sense to our mem- 
bers, who are mainstream and main street conservation activists. 
They understand the link between sustainable economic develop- 
ment and environmental protection. 

This hearing marks an important crossroads in America’s trade 
history. For too long, trade and investment agreements have been 
treated as if they were independent from their impact on the envi- 



105 


ronment, wildlife and natural resources. There has heen an as- 
sumption that more trade is always better, leading to greater 
wealth and an improvement in the quality of life for all people. 

But we have come to learn that liheralizing trade does not come 
without costs to the environment. We now recognize through first- 
hand experience that trade rules may restrict our ability to protect 
sea turtles and other imperiled species, limit bulk water exports 
from the Great Lakes, and provide information to consumers about 
the environmental impact of the products they buy. 

This need not be so. The National Wildlife Federation believes 
that trade liberalization could be a means by which the goals of en- 
vironmental protection and sustainable development are advanced, 
but this will require a change in the scope and direction of United 
States trade policy. Without this change, public confidence in trade 
policy will continue to erode. 

As host of the WTO Ministerial meeting in November, the United 
States has an unprecedented opportunity to demonstrate leader- 
ship in reviewing and reforming the international trade regime so 
it respects and promotes these core American values. We stand 
ready to assist Congress and the administration in developing a ne- 
gotiating agenda which fully incorporates environmental priorities 
with specific proposals for WTO rule reform and clarification. At 
the same time, I must acknowledge the National Wildlife Federa- 
tion’s willingness to oppose the next round of WTO negotiations if 
protection of the environment and democratic procedural reforms of 
the WTO do not emerge as key components of the future trading 
system. 

The National Wildlife Federation has an agenda for harnessing 
trade liberalization in the service of advancing the American values 
of environmental protection, natural resource conservation, and 
process values such as openness and fairness in decisionmaking. In 
my written testimony I describe this agenda in detail, but I would 
just like to highlight a few of those points. 

First, we must improve the WTO’s deference to national stand- 
ards and multilateral environmental agreements. Second, we must 
address the WTO prohibition on distinctions in production and 
process methods. Third, we must make environmental impact as- 
sessments integral to trade negotiations. And fourth, we must re- 
form WTO procedures, especially the dispute resolution system con- 
cerning transparency and public participation. 

As I said, these and other points are fully addressed in my writ- 
ten submission, and I welcome any questions you may have on 
that. 

We appreciate the administration’s recent statements on its 
agenda for integrating trade and the environment, and we urge the 
United States to move forward and embrace the recommendations 
we have made. Unless WTO nations embrace an agenda for reform 
to address environmental concerns, they will not earn the public 
support necessary for further trade liberalization. 

Mr. Chairman and Members of the Subcommittee, for our mem- 
bers the question is not whether or not to trade, but how to craft 
trade and investment rules that promote a healthier environment. 
Trade is not an end in itself. It is a tool to achieve human aspira- 
tions, to improve standards of living and to enhance the quality of 



106 


life. Trade rules are self-defeating if they force us to trade away 
those things we value most highly: Clean air, clean water, safe 
food, wildlife, and open and living places that give meaning to our 
lives. Trade should be an investment in a better way of life, not a 
license to degrade those things on which healthy life depends. 
Thank you. 

Chairman Crane. Thank you, Mr. Van Putten. 

[The prepared statement and attachments follow:] 

Statement of Mark Van Putten, President and Chief Executive Officer, 
National Wildlife Federation 

I am Mark Van Putten, President and CEO of the National Wildlife Federation, 
the United States’ largest not-for-profit conservation education and advocacy organi- 
zation with over four million members and supporters, ten field offices and forty- 
six state and territorial affiliates. For nearly ten years, our staff has been involved 
in the development of United States trade policy. Our members are America’s main- 
stream and main street conservation activists who understand the link between sus- 
tainable economic development and environmental protection. 

This hearing marks an important cross roads in American history. For years we 
have negotiated international trade and investment agreements as if they were 
independent from their impact on the wildlife and natural resources on which they 
often depend. We have assumed that “increased trade is always better,” because we 
believed that more trade lead to greater wealth and an improvement in the quality 
of life for all people. To that end. United States trade policy has traditionally been 
dedicated to securing greater market access for United States’ goods and services 
through the elimination of national policies of our trading partners that stood in the 
way of efforts to trade more and more products and services. 

In many cases, increased trade is better, especially when we are talking about the 
needs of developing countries. Increased access to international markets allows de- 
veloping countries to sell their goods and services to a growing global market. But 
as we better understand the impact living in a global society has on our efforts to 
protect the environment in a global society, we understand that liberalizing trade 
does not come without costs to the environment. We now understand that trade lib- 
eralization increases the pressure to turn wild spaces into farmland and, in a recent 
tragic example, can undermine efforts here at home to protect endangered sea tur- 
tles all over the world. 

The National Wildlife Federation believes that it is time to change the scope and 
direction of United States trade policy. We need a policy that will promote healthy 
economies and cleaner environments. Acting as host to the World Trade Organiza- 
tion’s Third Ministerial in November, we believe that the United States has an un- 
precedented opportunity to demonstrate its leadership on this important matter, 
and show the world that economically sound trade policy must respect the environ- 
ment and, the communities affected by the trend toward globalization. 

The WTO Ministerial represents a critical opportunity to review and reform the 
international trade regime so that it respects and promotes the core values of the 
American people. We stand prepared to assist Congress and the Administration in 
developing a negotiating agenda which fully incorporates environmental priorities 
within specific proposals for WTO rule reform and clarification. At the same time, 
we must respectfully acknowledge our willingness to oppose the next round of WTO 
negotiations if protection of the environment and democratic procedural reform of 
the WTO do not emerge as integral components of the future multilateral trading 
system. 

We acknowledge and appreciate the progress made by the United States in ad- 
dressing environmental concerns at the WTO High Level Symposium on Trade and 
Environment in March 1999 and in the United States proposals for the Seattle Min- 
isterial agenda presented before the WTO General Council in July 1999. We wel- 
come the Administration’s attempts to improve transparency and participation of 
civil society at the WTO and, to encourage the elimination of environmentally-dam- 
aging subsidies in the fisheries sector. We are also moderately encouraged that the 
WTO dispute settlement panel jurisprudence and, in particular, the Appellate Body 
rulings, have recently demonstrated an improved sensitivity to the merits of envi- 
ronmental policy. 

Despite the important United States proposals, we must reiterate our view that 
the positions articulated by the Administration as part of its Seattle Ministerial 
agenda are positive first steps. Clearly, the choice between awaiting improved juris- 
prudence and pursuing concrete rule reform is not necessarily an “either/or” propo- 



107 


sition. If the widespread support of NWF members and the American people for fur- 
ther trade liberalization is to be achieved, United States leadership and more 
progress needs to be made in implementing the proposed initiatives and in clari- 
fying and modifying the current trade rules to adequately reflect the integration of 
environmental concerns. 

I. The Relationship Between the International Trade Regime and 
Environmental Policy 

A. Background — The Principles of the GATT! WTO Regime 

The core principles of the General Agreement on Tariffs and Trade (GATT 1947) ^ 
and its recent successor, the World Trade Organization (WTO),^ have important im- 
plications for environmental protection. Generally speaking, WTO rights and obliga- 
tions impose certain disciplines on its signatory parties — or member nations. The 
following principles represent GATT’s core disciplines: 

Article I of the 1947 original GATT text establishes the Most-Favored-Nation 
principle (MFN). MFN aims to ensure that each member nation grant any privilege 
or advantage it provides to a product from one member immediately and uncondi- 
tionally to “like products” from, or destined for, all WTO members. MFN effectively 
requires all member nations to treat products from all other WTO members in the 
same manner. 

Article III establishes the National Treatment Principle, which requires members 
to treat any imported “like product” in the same manner as they would treat domes- 
tic “like products”. GATTAVTO dispute settlement panels have traditionally defined 
the term “like product” narrowly so as to prohibit distinctions in products based on 
the manner in which they were produced, or process and production methods (PPM). 
At its core. National Treatment is designed to prevent the discrimination of im- 
ported products in favor of domestic products. 

Article XI establishes a prohibition on quantitative restrictions and seeks to pro- 
hibit such trade actions as quotas, embargoes, and licensing schemes on imported 
or exported products. A WTO member country challenged with violating any of the 
above obligations has recourse to the GATT 1947 General Exceptions. Article XX(b) 
and (g) are the exceptions most frequently cited in trade disputes that involve the 
environment and natural resources.® Article XX also allows exceptions from the 
WTO general obligations to, inter alia, protect public morals, distinguish products 
manufactured with prison labor, exclude commodity agreements that meet certain 
criteria, and meet emergency shortages of supplies. 

Thus, if the trade provisions of a WTO member’s environmental policy are chal- 
lenged as a violation of its WTO obligations, the defendant country may attempt to 
justify the measure as “necessary to protect human, animal or plant life or health” 
(Article XX(b)) or, “relating to the conservation of exhaustible natural resources if 
such measures are made effective in conjunction with restrictions on domestic pro- 
duction or consumption.” (Article XX(g)). 

In addition to Article XX, the nexus between trade and the environment is fre- 
quently addressed within the context of the WTO Agreements on Technical Barriers 
to Trade (TBT Agreement) and the Sanitary and Phytosanitary Agreement (SPS 
Agreement) 

The TBT Agreement seeks to ensure that the nondiscrimination and national 
treatment provisions of the WTO as a whole are specifically applied to the adoption 
of technical regulations by members.’^ The TBT Agreement emphasizes deference to 
international standards in the creation of regulations governing, among others, 
product characteristics, process and production methods, labeling, and packaging.® 


1 General Agreement on Tariffs and Trade, Oct. 30 1947, 61 Stat. A3, 55 U.N.T.S. 187 [herein- 
after GATT 1947]. 

® General Agreement on Tariffs and Trade — Multilateral Trade Negotiations (The Uruguay 
Round): Final Act Embodying the Results of the Uruguay Round of Trade Negotiations, Dec. 
15, 1993, Multilateral Trade Negotiations (The Uruguay Round) Doc. MTN/FA, 33 I.L.M. 1 
(1994) [hereinafter WTO Final Act]. 

3 WTO Final Act, Article XX(b), Article XX(g) 

'‘Agreement on Technical Barriers to Trade, GATTAVTO (1994). A technical regulation is de- 
fined as: 

Document which lays down product characteristics or their related processes and production 
methods, including the applicable administrative provisions, with which compliance is not man- 
datory. It may also include or deal exclusively with terminology, symbols, packaging, marking 
or labelling requirements as they apply to a product, process or production method. 

5 TBT Agreement, Article 2. 



108 


The WTO SPS Agreement attempts to prevent non-tariff barriers to trade in the 
form of environment and health measures designed “to protect animal or plant life 
or health within the territory of the Member” through restrictions on invasive spe- 
cies, additives, pesticides, and other contaminants. In similar fashion to the TBT 
Agreement, the SPS Agreement places additional disciplines on WTO members so 
as to ensure that measures are not to be “maintained without sufficient scientific 
evidence,” nor be maintained “if there is another measure, reasonably available. . . 
that achieves the appropriate level of protection and is significantly less restrictive 
to trade.”® 

If a dispute arises, a complaining party may request the appointment of a dispute 
panel to settle the disagreement. The panel hearings are between governments and 
are generally closed to the public and non-governmental organizations (NGOs). 
Panel reports are adopted within sixty days of their issuance unless a member initi- 
ates an appeal or it is the consensus of the other members not to adopt the report. 
If a member chooses to ignore the recommendations of a panel, the complaining 
member may seek compensation in the area of trade directly related to the dispute 
or, if necessary may cross-retaliate in another trade sector. As a result, a member 
country whose environmental regulation is found by a WTO dispute settlement 
panel to be inconsistent with WTO obligations is immediately susceptible to signifi- 
cant pressure to either alter the environmental law in domestic administrative proc- 
esses or provide compensation to the complaining WTO member. 

B. Implications for National and International Environmental Poliey 

The GATTAVTO trade principles have direct implications for a host of environ- 
mental laws. Any national or multilateral environmental measures attempting to 
accomplish their environmental objective that results in the application of trade re- 
strictions with disproportionate impacts on different WTO members runs the risk 
of being in violation of the MFN principle. The trade provisions of a multilateral 
environmental agreement (MEA), the Montreal Protocol on Substances the Deplete 
the Ozone Layer, that promote different trade restrictions among WTO members 
based on their status as parties or non-parties to the Protocol may violate the MFN 
principle. Similarly, an environmental measure that attempts to distinguish prod- 
ucts based on the environmental consequences of their production (e.g. tuna caught 
in a manner that harms dolphins as opposed to tuna caught without producing dol- 
phin mortality) may violate the national treatment principle. Finally, if an environ- 
mental regulation restricts the trade in a particular product via a trade ban, the 
regulation in question may be declared inconsistent with Article XTs prohibition on 
quantitative restrictions. For example, the United States’ trade restrictions on 
shrimp products caught in a manner that harms sea turtles were recently found to 
be in violation of Article XI by a WTO dilute settlement panel. 

In addition to the core principles, WTO members are increasingly demonstrating 
a propensity to utilize the TBT and SPS Agreements to impose additional disciplines 
on national and international environmental policies. For example, WTO members 
continue to explore measures designed to discipline voluntary environmental label- 
ing and certification programs by advocating not only adherence to the TBT Agree- 
ment but, also a list of additional principles requiring ecolabeling programs to be, 
inter alia, “based on sound science” and “no more trade restrictive than necessary”.^ 
Ecolabeling proponents remain concerned that the new disciplines inherent in the 
recent proposals and the principles of the TBT Agreement go well-beyond the re- 
quirements of MFN and national treatment obligations and may place WTO dispute 
settlement panels in the position of interpreting the substantive merits of individual 
and voluntary environmental labeling programs. 

Similarly, the SPS Agreement requires national environmental measures to ad- 
here to additional trade-based disciplines and allows significant deference to inter- 
national standards. As a result, many national environmental and health authori- 
ties remain concerned that the SPS Agreement will allow WTO dispute settlement 
panels to sit in judgment of societal policy choices such as determinations relating 
to appropriate levels of risk and/or may defer to occasionally weaker international 
standards in the interest of promoting trade. 

As noted earlier, when differences of opinion over national policy and its relation- 
ship to trade rules arise, member nations seek a resolution via the new dispute set- 
tlement system established in conjunction with the WTO. Thanks in large part to 
United States leadership in the post-WW II era, the use of tariffs to impede the flow 
of goods around the world has diminished considerably. As a by-product of this suc- 


®SPS Agreement, Article 3:2 (para. 6). 

^See, e.g., Trade and Environment Bulletin, Committee on Trade and Environment (CTE), 
WTO, Press/TE 023, (May 14, 1998). 



109 


cess in tariff reduction, the WTO dispute settlement system has increasingly been 
called upon to confront the trade-distorting effects of non-tariff barriers. Within the 
international trade regime, domestic and international environmental regulation is 
often suspected, rightly or wrongly, of rising to the level of an actionable non-tariff 
barrier to trade. 

The WTO Dispute Settlement Understanding encourages members to enter into 
informal negotiations in an effort to reach a mutually agreed solution.® If a resolu- 
tion of the matter is not forthcoming, a challenging member invoking the dispute 
settlement procedures is entitled to a prima facie assumption that the trade provi- 
sions of the environmental measure being challenged are inconsistent with the WTO 
rules. The burden of proof to rebut the charge is on the defendant member seeking 
to implement the environmental regulation. 

In response to the preceding trade and environment linkages and in the interest 
of forging a new consensus on United States trade policy as we work together to 
develop IJnited States negotiating objectives for Seattle, the National Wildlife Fed- 
eration proffers the following recommendations as potential objectives for future 
United States trade initiatives. 

II. Establish Appropriate and Reasonable Limits to the WTO’s Influence on 
Legitimate National and International Environmental Measures 

A. Improve WTO Deference to National Standards and Multilateral Environmental 
Agreements (MEAs) 

Trade rules must be crafted so they do not diminish the environmental protections 
that nations have provided for their citizens and their natural resources. As trade 
negotiations and trade institutions are increasingly faced with the challenge of dis- 
tinguishing national standards adopted for legitimate health and environmental 
purposes from those regulatory standards enacted with protectionist intent, the 
need to ensure appropriate deference to national decisionmakers with environ- 
mental expertise acting at the behest of their citizens intensifies. 

As the recent WTO dispute settlement panel opinion regarding the United States’ 
efforts to protect endangered sea turtles and several other environmentally-related 
dispute settlement decisions attest, the WTO’s review of the trade-related aspects 
of environmental policy tends to expand rapidly into a substantive review, from a 
trade perspective, of the overall effectiveness of a chosen environmental policy.® 

In addition to endangered sea turtle regulations, the WTO and GATT dispute set- 
tlement bodies have recently issued rulings on domestic laws addressing appropriate 
levels of protection for growth hormones in beef,^® air quality, and fuel efficiency 
standards.!® 

1. Sanitary and Phytosanitary Measures 

WTO SPS negotiators are charged with the difficult responsibility and challenge 
of balancing the right of domestic regulatory authorities to determine their appro- 
priate level of risk and the obligation to maintain measures consistent with their 
commitments under the WTO SPS Agreement. The next level of SPS negotiations 
at Seattle and beyond represent a significant opportunity for the United States and 
its fellow WTO partners to absorb the lessons of existing SPS Agreements in the 
NAFTA and Uruguay RoundAVTO contexts and to create a much-improved agree- 
ment that ensures high levels of environment and health protection while facili- 
tating trade. 

A failure to seize this opportunity to establish a well-functioning SPS Agreement 
will undoubtedly lead to increased challenges to nondiscriminatory national environ- 
ment and health protection laws which will in turn result in increased tension and 
instability in the international trading regime and an erosion of popular support 
within WTO countries for the WTO process. Accordingly, we recommend that the 


® Understanding on Rules and Procedures Governing the Settlement of Disputes, WTO (1994). 

®See United States — Import Prohibition of Certain Shrimp and Shrimp Products, Final Re- 
port, WTO, WT/DS58/R, (April 6, 1998). See also, United States — Restrictions on Imports of 
Tuna, GATT Doc. DS29/R (June 1994) (unadopted); United States — Restrictions on Imports of 
Tuna, GATT Doc. DS21/R (Sept. 3, 1991) (unadopted), 30 I.L.M. 1594 (1991); Canada — Measures 
Affecting Exports of Unprocessed Herring and Salmon, GATT Doc. L/6268, (jATT BISD 98 (35th 
Supp. 1988). 

!°EC Measures Concerning Meat and Meat Products (Hormones), Final Report, WTO, WT/ 
DS48/AB/R, (January 16, 1998). 

!! United States-Standards for Reformulated and Conventional Gasoline (AB— 1996— 1), (March 
4, 1996). 

United States — Taxes on Automobiles, GATT Doc. DS 31/R, at 3-4 (Sept. 29, 1994) 
(unadopted) 



110 


WTO negotiators seek to achieve an SPS Agreement consistent with the following 
principles: 

Burden of Proof 

The WTO SPS Agreement should explicitly place the burden of proof in estab- 
lishing a violation of the SPS Agreement on the challenging party throughout the 
length of a dispute involving a particular country’s environment and health protec- 
tion measure; 

International Standards as Minimum Levels of Protection and the Precautionary 
Principle 

The WTO SPS Agreement should explicitly confirm that international standards 
are not to be considered maximum levels of protection in situations where a WTO 
country seeks to maintain a higher standard than an international standard. 

As a result, SPS Agreement negotiators should insist that, at minimum, an ex- 
press statement acknowledging that international standards may not be invoked to 
weaken higher domestic standards should be inserted into the SPS text. If modest 
deference to international standards is to be maintained, deference to relevant inter- 
national health and environmental standards and appropriate multilateral environ- 
mental agreements (MEAs) should be incorporated into the SPS Agreement. Indeed, 
the SPS Agreement should expressly acknowledge the right of WTO members to in- 
voke the Precautionary Principle (the right to take action against a potential harm 
even if the scientific evidence linking an activity to the harm in question is inconclu- 
sive or uncertain) in determining their appropriate levels of risk. 

Deference to National Regulatory Authorities 

The WTO SPS Agreement must allow for deference to national regulatory authori- 
ties in the assessment of risk and the determination of the appropriate level of SPS 
protection. As an appropriate starting point in considering modifications to the SPS 
Agreement, the United States should seek explicit language in the text of the WTO’s 
Sanitary and Phytosanitary Agreement similar to the language contained in the 
Uruguay Round Statement of Administrative Action. The United States has stated 
that the SPS Agreement’s definition of appropriate level of protection explicitly af- 
firms the right of each government to choose its levels of protection, including a 
“zero risk” level if it so chooses. A government may establish its level of protection 
by any means available under its law, including by referendum. In the end, the 
choice of the appropriate level of protection is a societal value judgment. The Agree- 
ment imposes no requirement to establish a scientific basis for the chosen level of 
protection because the choice is not a scientific judgment. 

In addition, trade rules must explicitly ensure that sovereign nations may con- 
tinue to adopt and maintain legitimate, nondiscriminatory protective standards for 
health, safety, and the environment. President Clinton has stated in an address 
marking the 50th Anniversary of the WTO “Enhanced trade can and should en- 
hance — not undercut — the protection of the environment. [Ijnternational trade rules 
must permit sovereign nations to exercise their right to set protective standards for 
health, safety and the environment and biodiversity. Nations have a right to pursue 
those protections — even when they are stronger than international norms.” 

Accordingly, WTO negotiators should insist that an interpretative statement be 
incorporated into the SPS Agreement reflecting the above position so as to provide 
clear guidance to WTO dispute panels that any potential SPS Agreement require- 
ment of scientific justification must not allow the substitution of a panel’s scientific 
judgment for that of domestic regulatory authorities. 

2. Allow Explicit Deference to Multilateral Environmental Agreements (MEAs) 

The potential conflict between existing WTO trade rules and the use of trade 
measures in MEAs has to be addressed. MEAs use trade measures to promote envi- 
ronmental cooperation and enforcement through the use of a variety of positive and 
negative incentives related directly to the environmental problem at issue, For ex- 
ample, MEAs utilize trade provisions to regulate the trade in a “target” product or 
substance primarily responsible for the environmental degradation — such as ozone 
depleting chemicals or trade in animal parts derived from endangered species. 


^^The Uruguay Round Agreements Act, Statement of Administrative Action at 89. 

Address By President Clinton to the World Trade Organization, Geneva, Switzerland, May 
18, 1998. 

^®See generally. General Agreement on Tariffs and Trade, Trade and the Environment (Feb. 
12, 1992), 30. 



Ill 


Frequently, many of the trade provisions in ME As require MEA parties to restrict 
trade in an environmentally damaging product with non-parties to the MEA. Under 
these circumstances, a non-party to the MEA that is a WTO member may allege 
a violation of their WTO MEN rights and obligations as a result of the differential 
treatment. In addition, trade restrictions in MEAs that encourage wholesale bans 
or embargoes of products may also be deemed inconsistent with Article XI’s prohibi- 
tion on quantitative restrictions. 

The National Wildlife Federation strongly supports global efforts to negotiate and 
implement MEAs. In general, MEAs encourage transparency and nondiscrimination, 
and simultaneously discourage alternative unilateral measures that may lead to fur- 
ther trade tensions. Traditionally, well-supported MEAs provide certainty for busi- 
ness and discourage “free-riders” from attaining competitive advantages over law 
abiding competitors. Negative economic consequences for products not related to the 
environmental harm at issue are rare and the WTO Secretariat has acknowledged 
that “none of the existing MEAs contain provisions for discriminatory trade meas- 
ures to be taken against unrelated products in the case of non-participation or defec- 
tion.” 

The United States needs to demonstrate leadership in working with other WTO 
members, MEA parties, and the international environmental NGO community to es- 
tablish a framework in which the laudable goals of trade liberalization and multilat- 
eral environmental protection may co-exist. We pledge to work with Congress and 
the Administration to: 

Build on the NAFTA model 

The United States’ commitment to multilateral environmental solutions to inter- 
national environmental issues as reflected in Article 104 of NAFTA made important 
strides towards increased deference for MEAs addressing shared international envi- 
ronmental issues such as the trade in endangered species, transboundary hazardous 
waste, and ozone depleting chemicals.^'' We urge the United States to consider an 
expansion of the list of MEAs eligible to be “grandfathered” into existing trade 
agreements and to provide explicit guidance to WTO dispute settlement panels that 
trade rules should not inhibit the environmental objectives of MEAs; 

Article 104: Relation to Environmental and Conservation Agreements 

1. In the event of any inconsistency between this Agreement and the specific trade obligations 
set out in: 

a) the Convention on International Trade in Endangered Species of Wild Fauna and Flora, 
done at Washington, March 3, 1973, as amended June 22, 1979, 

b) the Montreal Protocol on Substances that Deplete the Ozone Layer, done at Montreal, Sep- 
tember 16, 1987, as amended June 29, 1990, 

c) the Basel Convention on the Control of Transboundary Movements of Hazardous Wastes 
and Their Disposal, done at Basel, March 22, 1989, on its entry into force for Canada, Mexico 
and the United States, or 

d) the agreements set out in Annex 104.1, 

such obligations shall prevail to the extent of the inconsistency, provided that where a Party 
has a choice among equally effective and reasonably available means of complying with such 
obligations, the Party chooses the alternative that is the least inconsistent with the other provi- 
sions of this Agreement. 

2. The Parties may agree in writing to modify Annex 104.1 to include any amendment to an 
agreement referred to in paragraph 1, and any other environmental or conservation agreement. 

Enhance WTO Deference to Legitimate MEAs 

The United States should seek clarification of WTO rules to allow explicit def- 
erence to the independent institutions of established environmental expertise on 
questions of appropriate environmental policy in the global commons. For example, 
the WTO should establish a formal link to the United Nations Environment Pro- 
gramme (UNEP) as an appropriate venue for providing initial arbitration and exper- 
tise services to the WTO in the face of a dispute involving an MEA and WTO rules. 

III. Harnessing Competitive Energy to Work for the Environment 

Manufacturers tend to operate using a simple but powerful logic — produce the 
highest quality product while minimizing costs and seeking to operate in a multilat- 
eral rules-based system that provides as much certainty and clarity in its applicable 
rules as possible. The vast majority of businesses abide by the existing rules and, 
seek competitive environments where they know their colleagues do the same. Re- 
grettably, some businesses try to exploit loopholes in international trade and invest- 


16 W. 

11 North American Free Trade Agreement (NAFTA), Dec. 17, 992, Can.-Mex.-U.S., 32 I.L.M. 
296 and 32 I.L.M. 605. 



112 


ment rules to cut costs and create competitive advantages. Trade rules that do not 
acknowledge limited distinctions in products based on the manner in which they are 
produced (PPMs) or fail to aggressively curtail the use of environmentally damaging 
subsidies perpetuate an uneven competitive pla 3 dng field. From the perspective of 
law-abiding businesses, to ask producers, operating in compliance with domestic en- 
vironmental laws, to compete against foreign-based companies that compete by pol- 
luting the environment or destro 3 dng natural resources is inadequate trade policy 
and is simply not fair. 

Trade rules can be written in a way to encourage environmentally responsible be- 
havior, and to prohibit businesses from exploiting the loop holes that exist in the 
current international trade framework. 

The National Wildlife Federation recommends the following: 

A. Address the Process and Production Methods (PPMs) Dilemma: 

To promote a competitive level playing field. Congress and the Administration 
should work diligently to adopt appropriate criteria to ensure that legitimate envi- 
ronmental policies regulating production process methods are preserved from chal- 
lenge in a trade dispute. Initial criteria should allow WTO members to distinguish 
products based on the manner in which they are produced in limited and clearly 
defined environmentally-related circumstances. For example, distinctions in prod- 
ucts made with environmentally adverse consequences for the global commons (e.g. 
products produced with ozone depleting substances) and in measures designed to 
protect threatened or endangered species should be deemed consistent with WTO 
rules. 

B. Eliminate Environmentally Perverse Subsidies and Promote Trade in Environ- 
mental Technologies: 

Renewed attention and energy must be devoted to delivering eminently achievable 
“win-win” solutions in the trade and environment interface. For example, the elimi- 
nation of perverse and environmentally damaging subsidies in natural resource sec- 
tors such as fisheries and forest products may result in positive gains for both the 
environment and trade. We commend the United States for its leadership in seeking 
enforcement of current WTO notification requirements and rules governing the 
elimination of subsidies in its 1999 WTO Ministerial negotiating agenda. In addi- 
tion, the United States deserves credit for its efforts to place the facilitation of trade 
in environmental technologies on the Seattle Ministerial agenda. Admittedly, while 
the elimination of environmentally-damaging subsidies and improved trade in envi- 
ronmental clean technologies is not a panacea to the resolution of all trade and envi- 
ronment conflicts, progress in these areas does represent a positive step forward. 

C. Conduct Environmental Assessments: 

A commitment to sustainability and access to information argue forcefully for the 
initiation of comprehensive environmental assessments of natural resource sector 
liberalizations in the early stages of the trade negotiating process and upon comple- 
tion of trade negotiations. The United States should build on and strive to strength- 
en the positive experiences associated with environmental reviews prepared for 
NAFTA and the Uruguay Round Agreements establishing the WTO. In addition, the 
United States and our OECD trading partners have agreed that “governments 
should examine or review trade and environmental policies with potentially signifi- 
cant effects on the other policy area early in their development to assess the impli- 
cations for the other policy area and to identify alternative policy options for ad- 
dressing concerns.” 

The National Wildlife Federation stands committed to working with members of 
the Committee and the Administration in developing specific and practical environ- 
mental assessment proposals. The goal of the assessment(s), and their open public 
review and comment process, should be to provide accurate information on the rel- 
ative environmental impact of proposed liberalization in a variety of sectors under 
negotiation. In instances when a potential environmental harm is identified, the as- 
sessment should suggest mitigative measures such as staggered implementation 
schedules and/or technical assistance to lessen the impact on the environment. 

D. Negotiate Environmentally Responsible Investment Agreements: 

Increased foreign investment built on a solid commitment to sustainable develop- 
ment can potentially lead to transfers of cleaner environmental technologies and im- 
proved capital expenditures in environmental protection infrastructure. At the same 


i®OECD Guidelines on Integrating Trade and Environment Policy, OECD, OCDE/GD(93)99, 
para. A, B, (June 1993). 



113 


time, poorly crafted investment rules may exacerbate the exploitation of natural re- 
sources, contribute to environmental degradation and place downward pressure on 
national environmental laws and regulations through closed dispute settlement 
processes. As a result, NWF does not support the negotiation of investment rules 
beyond the current Agreement on Trade-Related Investment Measures (TRIMs) as 
part of the Seattle WTO Ministerial Agenda. The United States should maintain its 
current position of not seeking multilateral investment negotiations within the 
WTO. In the alternative, WTO investment negotiations should, at minimum, at- 
tempt to achieve the following: 

• Seek mandatory, enforceable measures in the trade agreement to prohibit the 
lowering of environmental standards to attract investment and an active monitoring 
system to ensure compliance; 

• Undertake a review of the traditional “investor-to-state” principle found in nu- 
merous bilateral investment agreements with an emphasis on its compatibility with 
procedural openness, transparency and environmental protection efforts. Recently, 
in the NAFTA context, several private investors have attempted to use the investor- 
to-state provisions to challenge domestic regulations with potentially detrimental 
consequences for environmental laws. Indeed, we understand the NAFTA parties 
are presently engaged in such a review and we urge close coordination with WTO 
negotiators in this process with increased attention devoted to ensuring greater 
safeguards for environment and public participation in a WTO investment frame- 
work; 

• WTO investment negotiations should include obligations allowing legitimate 
measures designed to conserve the environment, natural resources and the pro- 
motion of cooperative environmental programs to be maintained. 

E. Slow Down Negotiation of the Forest Products Accelerated Tariff Liberalization 
(ATL) Initiative Pending the Conclusion of a Comprehensive Environmental Assess- 
ment. 

The United States has announced, as part of the Seattle Ministerial Agenda, its 
intention to pursue accelerated tariff liberalization (“zero for zero” reciprocal tariff 
elimination) in the, inter alia, forest products, fisheries’ products, environmental 
goods, and chemicals sectors. In the forest products sector, the proposed joint USTR 
and CEQ “written analysis” of the forest products ATL presents a significant oppor- 
tunity for the United States to pause and assess carefully and thoroughly the envi- 
ronmental impact of the current ATL initiative on global forests. We urge the 
United States to utilize this analysis to promote an open and frank discussion of 
the ATL initiative’s direct effects on such factors as consumer demand and the effi- 
cient management of worldwide forest resources. Accordingly, we recommend that 
USTR and CEQ work diligently to ensure the ATL initiative properly addresses po- 
tential environmental concerns before proceeding at its current rate of negotiation 
and implementation. 

An enhanced commitment to sustainable development will require a comprehen- 
sive assessment of the potential impacts on sustainability of the proposed forest sec- 
tor liberalization. We wish to emphasize that NWF has not drawn any premature 
conclusions to the ensuing results of a thorough assessment. Clearly, some tariff lib- 
eralization will be beneficial to the environment while tariff liberalization in other 
areas may produce negative consequences for the environment. 

The goal of the assessment should be to identify those liberalizations likely to be 
less-harmful and give them a higher priority than areas of liberalization identified 
as detrimental to the environment. In instances when an environmental harm is a 
likely outcome, longer implementation timetables, technical assistance, the estab- 
lishment of preventive and mitigative measures, and proffering reasonable alter- 
native actions may merit due consideration by policymakers. An environmental as- 
sessment will also strengthen public participation in trade negotiations by making 
the best use of NGO and other civil society inputs and experiences involving trade 
liberalization impacts in certain natural resource sectors. 

In addition to an assessment of the “zero for zero” reciprocal tariff elimination ap- 
proach, a comprehensive analysis of the forest products ATL should explore the po- 
tential impact of experimenting with other aspects of the traditional tariff system, 
including inter aha: 

• carefully amending the Harmonized Tariff System (HTS) to better reflect the 
sustainable harvesting of natural resource products. The HTS has the potential to 
act as an incentive to encourage the production of natural resource products in a 
sustainable fashion throughout the United States and the entire world; 

• promote increased flexibility in the tariff system to potentially allow for a zero- 
tariff model in certain categories of forest products (e.g. finished wood products), 
while maintaining capacity to continue moderate tariffs in other categories (e.g. raw. 



114 


unprocessed logs or wood chips) if they were clearly shown to have adverse environ- 
mental and/or economic consequences. 

rv. Support Cooperation on Environmental Matters Among Trading Nations 

As trade liberalization leads to increased market integration, the opportunities to 
foster a meaningful cooperative environmental agenda through parallel environ- 
mental institutions multiply. Our own experience working with government officials 
in Latin America and elsewhere has helped us understand that it is not improve- 
ments in environmental protection per se that governments are reluctant to pursue. 
On the contrary, most government officials are trying hard to develop and imple- 
ment effective national environmental regimes. What concerns them are two factors: 

• In the past, some governments have regarded a number of environmental laws 
and regulations as thinly guised protectionism. We recognize improperly crafted en- 
vironmental policies can lead to unnecessary trade tensions; 

• The fear that, above and beyond trade agreement commitments, they lack the 
political will and/or technical resources to fully implement their own environmental 
laws and regulations. 

A. Promote Environmental Cooperation: 

The National Wildlife Federation supports the notion that trade and investment 
agreements create unique opportunities to further environmental cooperation among 
our trading partners that should not be ignored. The conceptual framework and co- 
operative mission of parallel environmental institutions associated with trade liber- 
alization merits strong political and technical support in all of the United States’ 
trade initiatives. 

In the NAFTA context, the Commission for Environmental Cooperation (CEC) is 
the trinational environmental institution created by the North American Agreement 
on Environmental Cooperation (NAAEC) (NAFTA’s “Environmental Side Agree- 
ment”) to address continental environmental issues in the United States, Canada, 
and Mexico. The CEC attempts to facilitate cooperation and public participation 
among the NAFTA parties by addressing regional environmental concerns, helping 
to prevent potential trade and environmental conflicts, and promoting effective envi- 
ronmental enforcement in each of the NAFTA countries. To date, the CEC has been 
particularly effective in encouraging improved working relationships between the 
environmental ministers of the NAFTA parties, while at the same time, providing 
a valuable forum to address transboundary issues of shared environmental concern 
in North America. 

The Border Environmental Cooperation Commission (BECC) is the certifying enti- 
ty responsible for developing and evaluating border water, wastewater, and munic- 
ipal solid waste (MSW) projects. BECC has comprehensive criteria to which projects 
must adhere in order to be considered for BECC certification. These include a 
project’s economic viability and its sustainable development components. The 
NAJDBank, now fully funded with $450 million in equal contributions from the 
United States and Mexico, is a binational financial institution that may use its 
funds to leverage additional capital but only for those projects certified by the 
BECC. 19 

The BECC/NADBank have been particularly effective in facilitating the develop- 
ment and adoption of sustainability criteria used to evaluate potential environ- 
mental infrastructure projects; transparent decision-making processes with public 
participation from both nations; and capacity building and technical assistance. De- 
spite this progress, several issues which are beyond the scope of this hearing remain 
a concern for some border communities seeking environmental infrastructure fund- 
ing, including: interest rates on loans are too high for some communities, particu- 
larly in Mexico; without a fee-based utility system, Mexican municipalities must pio- 
neer rate structures and fee collection; border population growth rates have in- 
creased rapidly as project development has lagged behind. 


19 Since its inception in 1994, the BECC has certified 26 water and wastewater projects to 
date, with 14 projects in U.S. and 12 projects in Mexico. Of those projects, the NADBank has 
closed financing packages on six projects and has made recommendations for financing on an- 
other 8 projects. Total NADBank financial commitment is $408.4 million (U.S.). Although few 
in number, these projects represent an exponential increase in water and wastewater system 
construction in the border region, particularly on the Mexican side. 



115 


V. Trade Negotiations and Trade Institutions Must Become More Open and 

Transparent 

As trade negotiations and trade institutions increasingly establish the terms of 
market integration and their attendant impacts on the environment, the need for 
meaningful public participation opportunities correspondingly increases. Public par- 
ticipation should be integral to any trade or investment negotiations. Such a linkage 
confirms the relationship between open markets and democratic principles, and pro- 
vides citizens with the information they need to make sound and informed choices 
about policies that affect their future. 

The United States has adopted a very positive approach to improving access to 
WTO decision makers and, ensuring that people are able to hold the WTO account- 
able for its actions. The National Wildlife Federation urges Congress to support this 
effort to infuse the WTO with the same democratic rules of accountability enjoyed 
by American citizens. 

The National Wildlife Federation recommends: 

A. Reform WTO Procedures Regarding Transparency and Participation to Ensure the 
WTO System Is Held Accountable to Democratic Principles: 

While the United States is to be commended for its efforts over the past two years 
to increase public participation and transparency in several trade negotiating fora, 
including as part of the Administration’s Seattle Ministerial agenda, further 
progress is within reach. For example, the United States must work diligently to 
increase transparency in individual sectoral WTO negotiating groups in which the 
United States actively participates. In the context of the Seattle Ministerial agenda, 
the recently proposed rebirth of the Committee on Trade and Environment (CTE), 
ostensibly created as a forum to identify and discuss the environmental implications 
of issues under negotiation in a new round, must not simply become a “mailbox” 
repository of NGO issues with no significant corresponding influence, nor impact on 
the negotiating process. Clearly, the CTE’s work program must avoid repeating its 
previous mistakes of conducting a one-sided and imbalanced review of the trade im- 
plications of environmental policy without addressing adequately the impact of 
trade policy on environmental measures. In addition to any proposed new role for 
the CTE, the WTO should establish, as a general matter, information disclosure 
policies and clear mechanisms for receiving and responding to NGO participation 
and comments. 

Improved access and accountability are especially important for people from devel- 
oping countries, many of whose governments do not have permanent missions lo- 
cated in Geneva. Given the informal nature by which the WTO makes its decisions 
at present, ensuring that the interests of all people are represented at the WTO 
must be integral to the United States objectives for trade liberalization. For most 
of the world’s population, the incredible acceleration of the global economy has also 
brought accelerated loss of wildlife and wild places. We urge the United States to 
devote its energy to ensuring that all future WTO procedures are open and acces- 
sible to all people. 

Finally, in the interests of promoting a more open and equitable procedure for es- 
tablishing and negotiating trade and investment agreements, the National Wildlife 
Federation has co-authored a White Paper which proposes a new form of trade nego- 
tiating authority.^° We believe that the ideas represented in this White Paper will 
stimulate a public debate on how best to empower the United States government 
to bring home trade agreements that promote healthy economies and cleaner envi- 
ronments. 

B. Open the Dispute Resolution Process: 

In all trade regime dispute settlement fora, the United States should, at min- 
imum, fulfill President Clinton’s commitment at the WTO to open dispute settle- 
ment proceedings to public observation and pursue mandatory consideration of ami- 
cus briefs from interested NGO parties. 

Conclusion 

Thank you again for the opportunity to present these views. Let me conclude by 
saying that, for the members of the National Wildlife Federation, the question is 
not whether to trade, but under what rules do trade and investment serve to pro- 
mote a healthier environment. Trade is a tool to achieve human aspirations, to im- 


Sierra Club and the National Wildlife Federation, White Paper on Alternative Trade Negoti- 
ating Authority. 



116 


prove standards of living, to enhance the quality of life. Our environment, our wild 
places and wild things are part of humanity’s quality of life. Diminish them and you 
diminish the human standard of living. Trade rules are self-defeating if they force 
us to trade away those things we value most highly — the clean air, the clean water, 
the open and living places that give quality to life. Trade should be an investment 
in a better way of life, not a license to degrade those things on which a healthy life 
depends. Unless WTO member nations embrace the agenda for WTO reform pro- 
posed by environmental organizations throughout the world, we believe that they 
will not earn the support they need to negotiate agreements that help to convince 
people that trade liberalization works for them. 

Center for International Environmental Law, National Wildlife Federation 
Sierra Club, World Wildlife Fund, Friends of the Earth Natural Resources 
Defense Council, Greenpeace USA Defenders of Wildlife, American Lands 
Alliance, Consumer’s Choice Council Earthjustice Legal Defense Fund, 
Pacific Environment and Resources Center Community Nutrition Insti- 
tute, Institute for Agriculture and Trade Policy 

Dear Ambassador Esserman and Mr. Robertson: 

Our organizations are deeply concerned about the Administration’s development 
of positions for the Third Ministerial Conference of the World Trade Organization 
scheduled for Seattle this fall. WTO rules and procedures have been used repeatedly 
to attack environmental laws that our organizations have worked for decades to cre- 
ate, strengthen and protect. Equally important, the continued pressure to expand 
trade through broadened and intensified application of trade policy, without an 
equal effort to ensure that the right framework of environmental law and policy are 
in place, threatens to impede the conservation of our natural resources and the 
maintenance and improvement of a healthy environment. Yet while the Administra- 
tion has sometimes raised general environmental concerns about trade and trade 
rules at the WTO — most recently at the March 1999 high level symposium on trade 
and environment in Geneva — it has failed to take the concrete actions needed to ad- 
dress those concerns effectively. 

As our groups have emphasized in past communications, the Administration can 
fulfill President Clinton’s pledge to put a “human face” on the global economy only 
if it combines its commitment to liberalizing trade with an equally strong commit- 
ment to environmental protection and sustainable development. We appreciate the 
Administration’s call to improve public distribution of WTO documents, enhance 
public participation in WTO dispute settlement proceedings, and encourage reduc- 
tion of fisheries subsidies that distort trade and encourage overfishing. These efforts 
fall far short, however, of the comprehensive reforms needed to ensure that the 
world trading system does not hinder sustainable development and environmental 
protection. For example, we have found unacceptable the Administration’s inflexible 
position in recent months that no textual changes to the WTO Agreements are need- 
ed, as it indicates a reluctance to deal seriously with environmental concerns. 

The WTO Ministerial Conference offers an historic opportunity for the Adminis- 
tration to lead the review and reform that the international trade regime needs so 
that it will promote, rather than undermine, environmental protection and other 
core values of United States citizens. We stand prepared to help the Administration 
seize this opportunity by developing an agenda that fully recognizes environmental 
priorities, if, however, the Administration misses the chance to put the WTO on a 
course toward sustainable development, this will undermine support for subsequent 
negotiations at the WTO — and for United States government authority to partici- 
pate in those negotiations — and invite united environmental opposition to the re- 
sults. To avoid this, the Administration must develop an environmentally beneficial 
agenda for the Ministerial Conference, and a comprehensive plan for environmental 
review and reform of the WTO, that go well beyond the proposals advanced to date. 

We recognize that the trade and environment issues confronting the WTO will not 
be resolved at a single ministerial meeting. What we do expect, however, is that the 
Administration formulate a plan for achieving solutions, and that it demonstrate a 
commitment to that plan through constructive, open engagement with the public, 
with Congress, and relevant agencies. Despite the complexity of the details, the out- 
line of the plan we need to see has three simple themes, described below. Although 
not every one of our organizations endorses every detail in this letter or the accom- 
panying attachment, we are united in support of the overarching principles ex- 
pressed here. We will evaluate the outcome in Seattle on this basis. 

1. Stop WTO Expansion. 

The Administration must avoid rushing into more negotiations on liberalization 
that would place the environment and environmental laws further at risk. In light 



117 


of the potential for significant environmental impacts, this is not the time to embark 
on further expansion of the WTO’s power or the scope of its rules. Thus, we oppose 
the launch of negotiations within the WTO on investment liberalization, government 
procurement or “early harvest” of tariff reductions. 

We oppose accelerated tariff reduction and other liberalization in selected sectors 
pending an open, participatory and balanced assessment that includes formulation 
of mitigating measures. Our concern is intensified with respect to environmentally 
sensitive natural resource sectors, such as forest and fish products. Forests and fish- 
eries are in crisis both nationally and globally. Prioritizing liberalization in these 
sectors is reckless, when we know that regulations and incentives for sustainable 
harvesting and commerce are grossly inadequate around the world. 

Multilateral investment rules beyond the current Agreement on Trade-Related In- 
vestment Measures (TRIMs) should not be the subject of negotiations at the WTO. 
We are concerned that the United States government may be shifting its position 
to support partial negotiations on investment under WTO auspices. 

2. Reform WTO Rules and Procedures. 

The WTO as it exists today urgently needs reform. The Administration must se- 
cure commitment to the reforms needed to ensure that existing WTO procedures 
and rules affirm, rather than hinder, environmental protection. 

In broad terms, the WTO’s limits of jurisdiction need to be defined more clearly, 
so that the WTO stays within its recognized realm of trade policy, and does not 
stray into the field of environmental regulation. Equally important, the WTO’s deci- 
sion-making must be transparent and must involve public scrutiny and input. 
Achieving these goals will require major changes in both the rules and the proce- 
dures for formulating, interpreting, applying and enforcing those rules. These 
changes must also be reflected in any negotiations that are launched in Seattle. 

Substantively, both existing and future WTO rules must be written and inter- 
preted so that they accord proper deference to national and international standards 
that serve legitimate environmental objectives. Procedurally, the terms of reference 
of each WTO working group or institutionalized body must provide for consideration 
of significant impacts on environment and sustainable development, and there must 
be mechanisms to ensure compliance. 

3. Assess Impacts. 

The Administration must provide for an assessment of the environmental impacts 
of proposed multilateral trade and trade policy. The fundamental question is wheth- 
er the framework of laws, policies and institutions is in place to ensure that addi- 
tional multilateral steps to liberalize trade will lead to environmentally and socially 
beneficial outcomes. If not, then the assessment must formulate needed institu- 
tional, legal and policy changes before moving forward with further talks on liberal- 
ization. 

This assessment process must begin immediately. It must be open and trans- 
parent, global in scope, and conducted through a balanced, impartial process. It 
should be carried out in cooperation with our trading partners. A forward-looking 
review must be complemented by a retrospective review of past and current impacts 
of existing policy. The reference point for the assessment must be the procedures 
and criteria developed under the National Environmental Policy Act. 

The statement attached to this letter provides further details on our organiza- 
tions’ bases for our positions and our suggestions for addressing these areas of con- 
cern. We appreciate recent overtures from the Administration that indicate open- 
ness to a more substantive dialogue, and look forward to the chance to discuss our 
positions further with you and your staff. 

Sincerely yours, 

David R. Downes 

Center for International Environ- 
mental Law 

On behalf of: 

Jake Caldwell, National Wildlife Federation 

Dan Seligman, Sierra Club 

David Schorr, World Wildlife Fund 

Andrea Durbin, Friends of the Earth 

Justin Ward, Natural Resources Defense Council 

Scott Paul, Greenpeace USA 

Rina Rodriguez, Defenders of Wildlife and Community Nutrition Institute 
Antonia Juhasz, American Lands Alliance 
Cameron Griffith, Consumer’s Choice Council 
Martin Wagner, Earthjustice Legal Defense Fund 



118 


Kristin Dawkins, Institute for Agriculture and Trade Policy 
Doug Norlen, Pacific Environment and Resources Center 
cc: Ambassador Stuart Eizenstat, Under Secretary for Economic and Business Af- 
fairs, Department of State 

Erank E. Loy, Under Secretary for Global Affairs, Department of State 
George T. Frampton, Jr., Acting Chair, Council for Environmental Quality Frederick 
Montgomery, Assistant US Trade Representative for Policy Coordination, Chair- 
man of Interagency Trade Policy Staff Committee 
Attachment 

Center for International Environmental Law, National Wildlife Federation 
Sierra Club, World Wildlife Fund, Friends of the Earth, Natural Re- 
sources Defense Council, Greenpeace USA, Defenders of Wildlife, Amer- 
ican Lands Alliance, Consumer’s Choice Council, Earthjustice Legal De- 
fense Fund, Pacific Environment and Resources Center, Community Nu- 
trition Institute Institute for Agriculture and Trade Policy 

The World Trade Organization and Environment Technical Statement by 
United States Environmental Organizations 

This statement provides further detail on the concerns and recommendations re- 
garding environmental issues outlined in the July 16 letter from several United 
States environmental groups. ^ Part I details our opposition to further expansion of 
the World Trade Organization (WTO) at this time. Part II identifies specific reforms 
needed to WTO rules and procedures. Part III outlines procedural and substantive 
elements of the environmental assessment of existing and proposed multilateral 
trade agreements. 


I. No WTO Expansion 

The Administration must avoid rushing into more negotiations on liberalization 
that would place the environment and environmental laws further at risk. In light 
of the potential for significant environmental impacts, this is not the time to embark 
on further expansion of the WTO’s power or the scope of its rules. Thus, we oppose 
the launch of negotiations within the WTO on investment liberalization, government 
procurement or accelerated sectoral liberalization, including “early harvest” of tariff 
reductions. 

We oppose the Administration’s effort to accelerate liberalization, especially in en- 
vironmentally sensitive sectors such as forest products, in the absence of a careful 
and public assessment of the potential environmental impacts (see Part III.3 below). 
Aiming to reach agreement on further liberalization at the Seattle meeting itself — 
as the Administration proposes to do with reduction of tariffs on forest products — 
flies directly in the face of the Administration’s commitment to review the environ- 
mental impacts of liberalization, because the schedule is too short to do a thorough 
assessment of effects and policy alternatives. 

As we have repeatedly stated, multilateral investment rules beyond the current 
Agreement on Trade-Related Investment Measures (TRIMs) should not be the sub- 
ject of negotiations at the WTO. Our objections to an investment agreement in the 
WTO go beyond the issues of establishing rights to sue for lost profits and investor- 
to-state dispute resolution. We are also concerned that enforceable rights to national 
treatment and most favored nation status could pry open environmentally sensitive 
sectors in markets where regulatory frameworks are inadequate to manage the in- 
creased environmental pressures that would result. If unaccompanied by strong 
frameworks of environmental and labor rights, application of the principles of na- 
tional treatment and most favoured nation could also increase “industrial flight” by 
companies seeking to avoid costs of compliance with labor and environmental re- 
quirements. 

In light of these objections, we are concerned that the Administration seems to 
be considering support for partial negotiations under WTO auspices. Prior to the ne- 
gotiation of any investment rules in any forum, an over-arching international frame- 
work is needed to ensure that international investments promote sustainable devel- 
opment consistent with the needs of host countries and to guarantee that the envi- 


^ Several of our groups have elaborated our concerns in detail in a October 16, 1998 response 
to the USTR’s Federal Register request for input regarding US preparations for the Seattle min- 
isterial, as well as in the Transatlantic Environmental Dialogue statement delivered to govern- 
ments at the recent 0-8 summit. The comments in this document are intended to summarize 
and complement these earlier statements and express the collective views of our respective orga- 
nizations; however, not every signatory necessarily subscribes to the details of each formulation. 



119 


ronment is protected. The development of such a framework and any subsequent in- 
vestment agreement should take place within the United Nations system. Any such 
agreement must include investor obligations with respect to environmental and com- 
munity protection. 


II. Reform WTO Rules and Procedures 

In its Communiqué from Cologne in June, the G-8 stated that “environ- 
mental consideration should be taken fully into account in the upcoming round of 
WTO negotiations.” We are pleased to hear the United States join other industri- 
alized countries in this ambitious commitment. Unfortunately, the United States’ 
proposals to date have been entirely inadequate to the task. To make significant 
progress, the Administration will need to make positive proposals on both sub- 
stantive and procedural rules, including existing rules of the WTO as well as the 
terms of reference for any further negotiations launched at Seattle. The Administra- 
tion will need to make a clear political statement that affirms environmental values 
and define a clear process involving the right mix of agencies and other partners 
for achieving progress on a range of issues. 

Substantively, the Administration will need to take action to ensure that the 
scope of WTO rules is limited to trade policy and does not intrude into matters that 
come under environmental law and policy. WTO rules must provide for deference 
to international and national environmental standards (Part II. 1), and protect the 
consumer’s right to know (Part II. 2). At the same time, WTO rules can and should 
be applied so that they encourage the elimination of environmentally damaging sub- 
sidies that also distort trade (Part II.3). Procedurally, the Administration must take 
steps to ensure that all WTO forums take environmental implications of their work 
into account (II.4), and that their operations become transparent and accountable 
(II.5). 

1. WTO Deference To International And National Environmental Standards And In- 
stitutions 

WTO rules need to be reformed so that they stay within the bounds of trade policy 
and do not intrude into areas within the jurisdiction of environmental institutions 
and regulations. We are pleased to learn that the Administration now seems to 
agree that ad hoc dispute settlement decisions alone are not a solution to the impact 
that WTO rules as currently interpreted may have on measures to protect the envi- 
ronment. United States leadership of a multilateral approach to a number of issues 
is needed to ensure that WTO forums — including the Dispute Settlement Body — and 
WTO rules consistently defer to regulations and other measures adopted by inter- 
national and national institutions, including measures based on the precautionary 
principle. 

In the absence of such consistency, there is a serious risk that these institutions 
will be impeded from pursuing legitimate environmental objectives through negative 
interpretations advanced by trade policy-makers, ad hoc challenges, and the threat 
of adverse decisions in WTO dispute settlement. Of particular concern are the 
GATT, the TBT Agreement and the SPS Agreement; also relevant are the TRIPS 
Agreement as well as agreements on subsidies and agriculture. 

Seattle is a critical opportunity for the United States to send a clear signal that 
trade policy must be developed and applied consistently with environmental prin- 
ciples, and to define a process and terms of reference for achieving agreement on 
how to ensure that WTO rules do not interfere with environmental measures. That 
process should aim at the following specific outcomes. 

a. Burden and Standard of Proof. Ensuring that the complaining party in a WTO 
dispute settlement proceeding has the burden to show the lack of an adequate basis 
for challenged local or national environmental and health regulations, and that 
WTO decision-makers employ a deferential standard of review, perhaps along the 
lines of Article 17.6 of the Anti-Dumping Agreement. 

b. SPS. Ensuring that the provisions of the SPS Agreement: 

i. Do not interfere with the right of national governments to develop and enforce 

high environment and health standards at the level they deem appropriate; 

ii. Fully recognize the precautionary principle; 

iii. Acknowledge clearly that international standards establish minimum, not max- 

imum standards for the levels of environmental and health protection set by 

WTO Members. 

c. Acknowledge Multilateral Environmental Agreements (MEAs) in WTO Rules. 
Consistent with the recent G-8 Cologne Communique, there must be an affirmation 
that trade-related environmental measures (TREMs) authorized or required under 
multilateral environmental agreements or internationally recognized environmental 



120 


principles are consistent with WTO rules, including Article XX of the GATT, the 
TBT Agreement and the SPS Agreement. Criteria should be defined indicating to 
the WTO how to recognize the types of agreements or principles that fit within the 
MEA category. Contrary to USTR’s suggestion in the July 2 briefing, the concept 
is not to establish criteria for evaluating whether an MEA measure is legitimate. 
Rather, such measures will be deemed legitimate by virtue of their adoption under 
an MEA. 

d. Build Effectiveness of MEAs including Trade-Related Measures. The Adminis- 
tration needs to make it a positive priority to build effectiveness of MEAs. Where 
trade-related measures are appropriate means for addressing the environmental 
problem, the Administration should support their use. A WTO decision to defer to 
MEAs will do little good if MEAs are written to include “carve-outs” that ensure 
that WTO rules prevail over MEA obligations. Disputes over the implementation of 
MEAs should be resolved by MEAs, not by the WTO. Thus, we are also seeking a 
commitment from the Administration not to advocate the inclusion of “savings 
clauses” in future MEAs. The Administration should also work with other countries 
through appropriate environmental institutions such as the United Nations Envi- 
ronment Programme (UNEP) to develop principles of trade policy to which nego- 
tiators of MEAs can refer during negotiations. 

e. Production or Processing Methods (PPMs). Ensuring that distinctions between 
products based upon PPMs related to environment, human rights and internation- 
ally recognized labor standards are recognized as legitimate measures for promoting 
sustainable commerce that are consistent with WTO rules. 

f. Procurement. A clarification or amendment to the Agreement on Government 
Procurement ensuring that it recognizes the right of governments to use social and 
environmental criteria in making purchasing decisions. Several of our organizations 
provided further suggestions on this topic in comments submitted to USTR by the 
Consumer Choice Coalition in January. 

g. UNEP and other Environmental Institutions. Adoption of cooperative agree- 
ments between WTO and international environmental institutions, including UNEP, 
by which the WTO defers to the role of appropriate institutions in addressing envi- 
ronmental aspects of international decision-making. Specifically, institutions such as 
UNEP and the secretariats of relevant MEAs should have a role in the settlement 
of environment-related disputes under the Dispute Settlement Understanding (DSU) 
as well as the definition of key international environmental principles such as the 
precautionary principle. Deference to such outside expertise is necessary in light of 
the specialized nature of WTO as a trade policy institution with trade expertise. 

We will be happy to discuss the precise legal form that these steps might take 
at the appropriate time. For instance, a clarification could involve language in a 
statement adopted by a WTO Ministerial Conference or the WTO General Council, 
an agreed-upon interpretation formally adopted by the General Council, or an 
amendment to the text of the relevant agreement. 

As a general matter, we would like to emphasize that the use of trade measures 
that affect developing countries to accomplish environmental goals should be accom- 
panied by assistance to those countries to help them achieve those goals. This is 
consistent with the Rio bargain that developed countries would assist developing 
countries in raising environmental standards and combating environmental prob- 
lems, so that all could share in sustainable development and an improved global en- 
vironment. The merit of this approach was recognized in the Appellate Body’s 
ShrimpATurtle decision. Unfortunately, developed countries have failed to carry out 
their end of the bargain, with foreign assistance budgets declining, and debt relief 
proposals still inadequate. A renewed political commitment from the United States 
and other industrialized countries would contribute significantly to multilateral 
agreement on the program outlined here, and would offer long term payoffs for the 
United States economy and environment. 

2. Protection of the Consumer’s Right To Know 

Markets can allocate resources properly only if consumers have the necessary in- 
formation to make informed decisions. Unfortunately, some WTO Members — includ- 
ing the United States government itself — have advanced interpretations of WTO 
rules that threaten to restrict the power of governments and private organizations 
to provide consumers with information they want about the environmental and 
health aspects of products and their production. We urge the United States to work 
with other WTO Members to launch a process at Seattle that leads toward the fol- 
lowing outcomes: 

a. Ensuring that the WTO Agreement on Technical Barriers to Trade (TBT) pre- 
serves the ability of governments and private organizations to protect the con- 



121 


Burner’s right-to-know and to promote sustainable consumption through open and 
transparent labeling programs, including genetically modified food; 

b. Ensuring that the TBT Agreement recognizes the legitimacy of regulations and 
standards that distinguish between products based on the environmental con- 
sequences of their manufacture, use and disposal; and 

c. Ensuring that the TBT rules do not conflict with speech protected under the 
U.S. Constitution, including third-party certified private labeling programs. 

As with the proposals in Part II. 1 above, we are open to further discussion about 
the precise legal form that these assurances should take. Generally, however, the 
principle is that the WTO must recognize that the TBT Agreement effectively in- 
cludes an exception along the lines of Article XX, to the extent it applies to 
ecolabeling. 

3. Eliminate Environmentally Damaging Subsidies 

We welcome and support the Administration’s willingness to push for the elimi- 
nation of fishery subsidies that have contributed to the current global fisheries cri- 
sis. The Seattle ministerial should unambiguously place the fishery subsidies issue 
on the negotiating agenda, and should do so in the context of an open interdiscipli- 
nary and inter-organizational procedure that includes other institutions with rel- 
evant and needed expertise alongside the WTO. We urge the United States to push 
for a similar review of other environmentally damaging subsidies, such as those for 
forestry, fossil fuels and nuclear energy. At the same time, WTO Members must en- 
sure that WTO rules allow governments to craft measures that reward the social 
and environmental values conferred by certain activities, such as adoption of envi- 
ronmentally responsible technologies, artisanal fishing and development of renew- 
able sources of energy. The ability of the WTO to play a constructive role on sub- 
sidies will be a significant test of the organization’s ability to produce the oft-prom- 
ised “win-win” outcomes for trade and the environment. 

4. Recognizing Environmental Aspects of WTO Decision-Making 

Another key question is how to reform the procedures and institutions of the WTO 
so that decision-making takes into account its environmental implications. The 
United States proposes to use the Committee on Trade and Environment (GTE) on 
a “rolling basis” and in an advisory capacity to address the environmental aspects 
of WTO decisions. But compartmentalizing environment in the GTE has not worked 
in the past and will not work in the future. The Administration has offered no con- 
crete steps that would effectively link the GTE to the real decision-making forums 
at the WTO. 

In our view, much more is needed to ensure that the WTO takes environment into 
account in its decision-making. As a general matter, all relevant WTO bodies — in- 
cluding councils, committees, and working groups — must include reference to envi- 
ronmental protection and sustainable development among their objectives or terms 
of reference, consistent with the preamble of the WTO Agreement itself. 

The WTO will also have to adopt procedures that ensure that these forums take 
these objectives seriously. For instance, each forum could periodically consult with 
international environmental institutions with relevant expertise, report on the envi- 
ronmental implications of their work, and make recommendations on how to address 
environmental impacts of the trade policies with which they are concerned. The 
CTE might have a role through review and comment on that report. Another option 
is for the WTO’s Director General to present a review of the WTO’s record on envi- 
ronment and sustainable development in a section of the annual report. The United 
States itself could do a better job of integrating environment by including represent- 
atives from relevant agencies such as the EPA on delegations when forums such as 
the SPS or TBT Committees discuss environment-related issues. 

5. Improved Transparency, Public Participation And Accountability At The WTO 

We very much appreciate the efforts made by the Administration to advance 
democratic reform of the WTO. We ask that the Administration continue to include 
increased transparency, participation and accountability as a priority on its negoti- 
ating agenda in Seattle. However, effective achievement in this area will require 
more actions in addition to broader and faster access to working documents and con- 
sideration of NGO submissions in dispute settlement. It will also require, at a min- 
imum: 

a. opening of dispute settlement and appellate body proceedings to public observa- 
tion; 

b. NGO participation in discussions of environment-related issues by other WTO 
decision-making forums, such as the SPS Committee, the TBT Committee, the 



122 


TRIPS Council, the Agriculture Committee, the CTE, and relevant negotiating 
groups; and 

c. the development of a consultative process between the WTO, NGOs, member 
governments and businesses. 

We recognize the validity of concerns raised by developing countries that they 
may have fewer resources than do some NGOs. The United States and other devel- 
oped countries should support fuller participation by poorer WTO Members, for in- 
stance through financial and technical assistance. 

A first step towards improved transparency of the WTO and trade policy must 
begin at home. We have indicated our willingness to work with the Administration 
to provide input into the negotiating agenda, yet little information and no docu- 
ments have been shared with the NGO community as the Administration prepares 
its position for the WTO Ministerial. Only at the July 2 hriefing did we hear any 
degree of detail about the Administration’s proposed positions. We urge the Admin- 
istration to be more transparent, to share information and documents, to engage the 
NGO community in a constructive dialogue, and to ensure balanced representation 
on advisory committees dealing with trade issues that have environmental implica- 
tions consistent with the Federal Advisory Committee Act. Furthermore, we reit- 
erate our request that the United States include NGOs on its delegation to the WTO 
Ministerial meeting, especially since other governments, such as Denmark, have al- 
ready done so. 

III. Environmental Assessments of Current and Proposed Trade Policies 

We are pleased that President Clinton has committed the federal government to 
conducting an environmental review of the next round of talks at the WTO. How- 
ever, the Administration needs to make significant progress in this area. We are 
concerned about the adequacy of the process and criteria for such an assessment. 
We believe that the assessment should include a review of both past and current 
impacts of existing trade policies on the environment and on environmental law and 
policy, a similar review of foreseeable impacts of proposals for negotiations, and con- 
sideration of policy alternatives. We remain very concerned about the conduct of as- 
sessments of proposed tariff reductions in environmentally sensitive sectors. Finally, 
we have concerns about certain process issues, including the roles of relevant agen- 
cies and cooperation with other governments. 

1. Procedures and Criteria for Assessment 

We are concerned that the Administration has yet to suggest any procedures or 
criteria for the assessment, with Seattle less than six months away. In our view, 
there are some clear principles with which this assessment must comply. Many of 
these principles are found in the National Environmental Policy Act (NEPA). The 
starting point for this assessment must be NEPA’s mandated procedures and meth- 
odologies, as elaborated through regulations of the Council on Environmental Qual- 
ity, and enriched through decades of federal agency experience with implementa- 
tion. 

At a minimum, the assessment must he comprehensive in scope, covering all Ad- 
ministration proposals for modifying or adding to existing trade policies embodied 
in the WTO Agreements. The assessment should be framed in terms of two basic 
questions. Is the framework of laws, policies and institutions in place to ensure that 
additional multilateral steps to liberalize trade will lead to environmentally and so- 
cially beneficial outcomes? If it is not, then what institutional, legal and policy 
changes must we make before we move forward with further liberalization? 

The assessment must involve the full participation of civil society. In light of the 
short time remaining before Seattle, the assessment procedure must begin imme- 
diately. It must consider reasonably foreseeable impacts on a global scale. It must 
continue until the conclusion of any new negotiating round, taking into account new 
knowledge as it accumulates, as well as evolving trade policy positions. It must 
identify areas in which existing WTO agreements and new negotiations have (or will 
have) significant environmental effects, and evaluate policy alternatives and mitiga- 
tion measures, including reforms of existing agreements and modifications of pro- 
posed ones including the no-action alternative. And it must integrate social and de- 
velopment concerns. 

To ensure that the results are balanced and objective, the process should be over- 
seen by the CEQ and conducted with the full and equal participation of affected fed- 
eral agencies, state and local governments, and interested members of the public. 
Finally, we urge the Administration to take the lead in facilitating an assessment 
at the multilateral level by a balanced panel of experts drawn from the WTO Secre- 



123 


tariat, international institutions with environmental and other relevant expertise, 
the scientific community, and the public. 

2. Assessments of Existing Trade Policies 

A forward-looking assessment must be complemented by consideration of lessons 
learned. To date, unfortunately, governmental consideration of environmental im- 
pacts of trade policy have been inadequate. As a result, we urgently need to gain 
a better understanding of the impacts of past trade policies. Thus, the Administra- 
tion should also conduct an assessment of the environmental impacts of the WTO 
Agreements adopted in the Uruguay Round, carried out consistent with the prin- 
ciples we have outlined for conducting an assessment. 

This review should cover all relevant WTO Agreements, such as the General 
Agreement on Tariffs and Trade (GATT), the Agreement on the Application of Sani- 
tary and Ph 3 dosanitary Measures (SPS), the Agreement on Technical Barriers to 
Trade, the Agreement on Trade-Related Aspects of Intellectual Property Rights 
(TRIPS), and agreements on subsidies and agriculture. In relation to the TRIPS 
Agreement, we are concerned that the expanded scope and enforcement of intellec- 
tual property rights required under the WTO TRIPS Agreement may affect the 
transfer of technology required under multilateral environmental agreements 
(MEAs), the rights of farmers and indigenous peoples, and the equitable distribution 
of benefits required under the Biodiversity Convention. 

3. Assessment of Proposals for Accelerated Sectoral Liberalization 

Beginning in the context of Asia-Pacific Economic Cooperation (APEC), and more 
recently in the WTO, the Administration has proposed accelerated reduction of tar- 
iffs, accompanied by examination of non-tariff measures, of a number of sectors, in- 
cluding environmentally sensitive sectors such as energy, chemicals, fish and forest 
products. In light of the potential environmental impacts, we urge the Administra- 
tion to assess carefully the environmental effects of accelerated liberalization in all 
sectors, and to define and implement policy measures to maximize environmental 
benefits and mitigate harmful impacts. The United States should not push for accel- 
erated liberalization until full environmental assessments have been conducted — of 
the proposals for both tariff and non-tariff measures — along the lines discussed in 
this letter. In light of the severe threats confronting forests and fisheries, and the 
demonstrably inadequate national and international frameworks for conserving 
them, this approach is particularly important with respect to the fish and forest 
product sectors. 

We appreciate the step in the right direction represented by the joint analysis of 
the economic and environmental effects of the forest product initiative to be con- 
ducted by CEQ and USTR. We are skeptical, however, whether the review as de- 
fined in the June 25, 1999 Federal Register notice will be an adequate basis for 
sound policy making. Even if it is, we are equally concerned that the review’s re- 
sults will not be taken into account in the ultimate decision. Thus, we call on the 
Administration to explain on the record the environmental basis for whatever policy 
decision it takes. As currently proposed, the review does not reflect key principles 
of NEPA. For instance, the Federal Register notice allows only 30 days for the pub- 
lic to provide input, and it is unclear whether there will be any other opportunities 
for public participation. 

4. Assessment of the Built-In Agenda 

Services. We have concerns that negotiations on services could have some of the 
same far-reaching implications for domestic environmental and health regulation as 
would investment liberalization. Services, like investment, involve activities within 
a country’s territory that relate to a host of regulatory functions performed by fed- 
eral, state and local authorities. When it comes to trade liberalization, services, like 
investment, raise a host of concerns about community values, regulation and sov- 
ereignty that are not so directly posed by goods. We urge the Administration to as- 
sess environmental and social implications as it develops its positions. 

Agriculture. The United States has called on WTO members to carry forward with 
agricultural negotiations with the objectives of gaining “further deep reductions in 
support and protection, while encouraging non-trade distorting approaches for sup- 
porting farmers and the rural sector.” We share the Administration’s desire to re- 
form policies and programs that encourage environmentally damaging expansion 
and intensification of production. At the same time, government agricultural policy 
can and must reflect the multiple environmental and social functions that agri- 
culture plays. Support for environmentally responsible agriculture can help level the 
playing field for farmers who take responsibility for the impacts that production has 
on the environment of their neighbors, and at the same time have to compete with 



124 


producers that externalize environmental costs onto society. Government policy also 
should take into account the social values that independent farmers provide to com- 
munities. 

We urge the Administration to make an effort to ensure that the United States 
approach to agriculture at the WTO strikes a better balance among these policy ob- 
jectives than in the past. The United States continues to maintain direct and indi- 
rect subsidies and protections that distort agricultural markets and threaten our en- 
vironment, such as below-market pricing for water from government-funded projects 
and for grazing on public lands. The Administration should carry out a thorough 
review and restructuring of these policies and programs. 

The agricultural negotiations on the built-in agenda will offer governments a 
chance to develop a multilateral understanding of which policies and programs 
should be reduced, and which should be permitted, on environmental and social 
grounds. The assessment we are calling for will provide an opportunity for this. 
Governments should also explore how to help developing countries implement such 
support, whether through multilateral financial and technical assistance or through 
some system of preferences. We urge the Administration to provide leadership on 
the issue of food security in these talks. Governments must consider the impacts 
that dumping of food exports have on the productive capacity of countries whose 
populations suffer from chronic hunger, and take this into account in defining rel- 
evant trade policies. 

Submitted by: 

David R. Downes 
Stephen Porter 

Center for International Environ- 
mental Law 

On behalf of: 

Jake Caldwell 
National Wildlife Federation 
Dan Seligman 
Sierra Club 
David Schorr 
World Wildlife Fund 
Andrea Durbin 
Friends of the Earth 
Justin Ward 

Natural Resources Defense Council 
Scott Paul 
Greenpeace USA 
Rina Rodriguez 

Defenders of Wildlife and Commu- 
nity Nutrition Institute 
Antonia Juhasz 
American Lands Alliance 
Cameron Griffith 
Consumer’s Choice Council 
Martin Wagner 
Earthjustice Legal Defense Fund 
Kristin Dawkins 

Institute for Agriculture and Trade 
Policy 

Doug Norlen 

Pacific Environment and Resources 
Center 


Chairman Crane. Mr. Kleckner, is there room for a compromise 
between industry and service interests who advocate early harvests 
of trade liberalization measures and agriculture groups like the 
Farm Bureau who insist on the need for a single undertaking? 

Mr. Kleckner. Good question, Mr. Chairman. We need to keep 
talking about it. I talked to Sue Esserman during the break today 
when you went back to vote, and I talked to Charlene Barshefsky 



125 


yesterday by telephone, and, John, you and I visited briefly early. 
We have to keep talking about that to see if there can be a meeting 
of the minds. 

I just believe that strongly, though, that if we solve some of the 
problems and leave the tough ones like agriculture to last, it is 
going to be very, very tough to get it done there. And that is not 
a new position for me or for us in the Farm Bureau. In Belgium, 
Mr. Chairman, in Brussels in 1990, when this Uruguay round was 
supposed to end, I chaired the American delegation of all segments 
that were there. When it looked as though agriculture was going 
to be able to get theirs done first, and I said to my cohorts — they 
were not there in person, but their companies were — that I did not 
favor that because I didn’t think that they would get what they 
wanted at the end of the day if we got agriculture solved first. 

In the end it did not work that way, but we are all in it together, 
or we are not in it at all, it seems to me. I am willingly to talk 
to John and to the other ones, including Charlene and Sue 
Esserman, to see if there is somewhere that we could work it out, 
though. 

Chairman Crane. Have you got anything to add to that, Mr. Dil- 
lon? 

Mr. Dillon. I agree with Dean. Someplace there needs to be a 
coming together. I would only point out that part of the difference 
here is the issue on forestry and paper is old business that is car- 
ried over from the Uruguay round, and there were agreements on 
the part — or direction on the part of the Congress to the adminis- 
tration to move forward on those agreements in the zero-for-zero 
sectors from the Uruguay round and to do so, before the next 
round. 

On the other hand, these are tough issues, and if we are not to- 
gether on them, the Japanese and the Europeans are going to look 
for any crack that they can find. And so I think, as Susan has said 
and as Dean said, there has got to be a way here that we can meet 
everybody’s objectives and come out of this not with a split in our 
ranks, but a position that we can go forward on. 

Chairman Crane. Mr. Micek, I am intrigued by the broad coali- 
tion that you have put together in support of the food chain pro- 
posal which spans manufacturing and services in addition to agri- 
cultural interests. Is the proposal apt to appeal to lesser developed 
countries? 

Mr. Micek. Well, as a matter of fact, the proposal that we are 
advocating really is an extension of the open food system that is 
being advocated in APEC member countries. The open food system 
really is about bringing more and better food to more people at af- 
fordable prices. To do this, one of the key things we need to do is 
to deal with the issue of food security. If we can do that, we can 
deal with some of the issues that have been talked about, about 
some of the environmental concerns. 

For example, there is land in China that is being farmed agri- 
culturally that should not be farmed, but one of the key reasons it 
is farmed today is because the Chinese are on a policy of 100 per- 
cent self-sufficiency. And if we can deal with some of these difficult 
issues, I think we can also find a way to deal with some of the en- 
vironmental problems we have. 



126 


Chairman Crane. Thank you. 

Mr. Van Putten, what types of improvements in the WTO’s insti- 
tutional operations are needed to ensure more transparency and 
accountability? 

Mr. Van Putten. Well, Mr. Chairman, we think the types of im- 
provements include access to the decisionmaking panels, inclusion 
of friends of the court briefs, if you will, publication of panel deci- 
sions. Those types, sort of transparency values that we take for 
granted here in the United States are critical, we think, to the 
WTO taking into account values like the environment, but also 
gaining public confidence in the decisionmaking processes. 

Chairman Crane. Thank you. 

Mr. Levin. 

Mr. Levin. Thank you. 

Mr. Van Putten, I will start with you. Thank you. I think your 
testimony is constructive, and I think there is a spirit of willing- 
ness to look at issues together, and I hope everybody picks that up. 

Mr. Kleckner, I, for one, lean in your direction. I hope we can re- 
solve in terms of this early harvest. Maybe — the Farm Bureau, you 
are not in favor of early harvest usually. It is not ripe. But, seri- 
ously, I trust we will work hard to work this out. It seems to me 
if you say in advance you will accept separation, you are likely to 
have people try to cherry-pick issues, while if you say you want to 
wait until it is all resolved before anything, there is a pressure to 
resolve everything. You can later modify that if you need to. That 
is the way I lean. 

First, service products. I remember when I was over for the Uru- 
guay round talking to some Europeans, Mr. Dillon, but in those 
days — it was not that long ago — some of the countries have 14-per- 
cent tariffs, and we had much, much lower, as I remember it, and 
that struck me as unfair. And I think you are right to call for be- 
ginning to more level the playingfield, including the emerging 
economies. 

And I would just suggest to you that you look at the playingfield 
and that you take into account issues including environmental dif- 
ferentials, and we are not talking about having identical struc- 
tures, but differentials as well as in the labor market. I mean, that 
is part of the difference in scales. 

In that regard I want to just say a word about the labor issues, 
because, Mr. Kleckner, you said we cannot allow economic pros- 
perity of our Nation and that of our agricultural producers to be 
used as a weapon for nations that disagree with our values. 

I don’t think that is, if I might say so, quite a fair way to say 
it, because in a sense our struggle on trade has been to convince 
people to abide by or incorporate our values in terms of free mar- 
kets into their systems. And I think to separate out labor issues 
that way, labor market issues kind of misses the point. And the 
same with environmental issues. 

In that regard — and I am sorry that Mr. Pepper is not here, be- 
cause I was struck by his testimony. I happened to be at an advi- 
sory Committee meeting where there was discussion and very open 
discussion. And I hope all of us will encourage ACTPN to continue 
these, and I wish Mr. Sweeney and Mr. Donahue good luck because 
we need to try to find common ground. If we do not find it, I think 



127 


we are likely to have continued stalemate in straight issues here 
and possibly a blowup in Seattle, and that is not what we want. 

I finish, Mr. Micek, with your testimony because I am trying to 
persuade you, and I am hoping Mr. Pepper can persuade you, to 
discuss these issues. You say in your testimony that the agenda 
should avoid globally divisive issues such as nontrade-related labor 
or competition policies on which there is not yet a broad consensus 
within the WTO. That is not to say these issues are unimportant. 
It is merely to recognize that if contentious issues dominate the 
ministerial, confidence in the global trading system and U.S. lead- 
ership will be undermined. 

You know, I have not been a USTR negotiator, but I have been 
at a number of sessions, and they are nothing if not contentious. 
I mean, we cannot eliminate issues from the ministerial and the 
next round because they are contentious. Agriculture is sure — con- 
tentious, my lord, that understates it. 

And then you say on labor issues the U.S. is pursuing an appro- 
priate course in increasing its support for the ILO and focusing its 
efforts to achieve a forum on global labor issues within that organi- 
zation. 

I respect the ILO up to a point. It has been evolving some core 
labor standards, but its function is limited. It has no enforcement. 
There is nothing there except discussion and then unanimous 
agreement to accomplish something. And the question is how we 
take what they have evolved, and where they are part of the trade 
equation, how we work it out so they are meaningful. So it will not 
work to just say leave it to the ILO. And I think Mr. Pepper ac- 
knowledges that. And that is the basis for the discussions with Mr. 
Sweeney, how we are going to go try to find some common ground 
beyond that. And I just urge everybody in the business community, 
I urge everybody in the environmental community as well as the 
labor community these next weeks and months to work hard, be- 
cause otherwise who knows what is going to happen? 

Thank you, Mr. Chairman. 

Chairman Crane. Mr. Watkins. 

Mr. Watkins. Thank you, Mr. Chairman, and let me say I appre- 
ciate this panel very, very much, and I would like to preface some 
things. My colleagues know I was here in Congress, and I left and 
I went back to Oklahoma, and then I came back. I was on that side 
of the aisle, and now I am back on this side of the aisle. So let me 
say I came back for two reasons: One, to balance the budget. I felt 
like I had not done justice by the future generation of our children 
and grandchildren, and I am very proud of the fact we have bal- 
anced the budget in this Congress and all. 

Second, I came back because I wanted to help shape a 21st cen- 
tury global competitive economy for this country. I hope — you may 
say what is a 21st century global competitive economy? Let me say 
that I see it as one that we have got to have less taxation. Some 
of you have mentioned some countries do not have capital gains, 
but we do have a situation in this tax bill that we are going to vote 
right now on. We have got some great provisions that is going to 
allow us to be more competitive around the world, so we need you 
to go out and sell that to the American people, if we believe what 
we are talking about. 



128 


The second thing we have got to have is less regulation if we are 
going to be competitive. About 7 percent overburden we have on 
our trade products because of regulations. We have got to try to 
continue to ratchet that downward. 

And third, we have got to have less litigation. I don’t know about 
you, but in business I guarantee you I spend more money — or I did 
when I was in business — let me say, there is no one any more sin- 
cere in this Congress than I am about trying to have free and fair 
trade. I want us to succeed. I could probably not have come back 
to Congress. I could have probably shoved back and said this is not 
going to affect Wes Watkins, but my children and grandchildren 
have no way to go. They cannot. They have got to participate. 

What we do has got to lay that kind of foundation in this world 
in this global economy, and we are not going back, and we all know 
that. I was born and raised on a farm. I love agriculture. I lost ev- 
erything to a drought, but I went on to Oklahoma State University 
and acquired two degrees in agriculture because I love it and know 
it is very important. 

I want to mention to Mr. Micek, could I ask you or maybe one 
of your individuals to come by the office. I would like to discuss the 
Emergency Committee on American Trade. And before Mr. 
Kleckner leaves right fast. Dean, if I could, before you take off, 
many of my farmers feel like that we are being traded down or we 
are traded out in agriculture because when we negotiate it away. 
I detect you have a concern, and we have got to have a package, 
but not trade us out; is that correct? 

Mr. Kleckner. Yes, sir, Mr. Watkins. You know, I talk to the 
same people you do, whether they are in Oklahoma, and the feeling 
is kind of general among farmers that we have not negotiated as 
well as we could have, or if we did, we have not enforced the agree- 
ments as well as we should have. And in the Farm Bureau, and 
your State president. Jack, in your State, and other people I talk 
to all around the country tell me consistently we have got to either 
do a better job of negotiating, be a little firmer or tougher. Our tar- 
iffs are so low, for example, that the average 50 percent we pay 
around the world, other countries send agriculture products in here 
at 5. What is fair about that? Bring them down a ways before we 
do anything else or very much of anything else. 

Mr. Watkins. In your testimony you say we are reeling out there 
in agriculture, and I know we are. And we are under a freedom to 
farm policy, but freedom to farm will not work unless we have free- 
dom to the markets of the world, and we have to get rid of a lot 
of these sanctions out there. Literally, we are killing ourselves. 

Mr. Kleckner. Mr. Watkins, you recall when freedom to farm 
passed in 1996, we supported it. I still think it is a good bill, but 
there were certain things promised to us in return, including open- 
ing markets around the world, less regulation, reformed taxes, all 
of those things, so it went one way, it didn’t come the other way. 

Mr. Watkins. That is correct. Thank you very much, and I look 
forward to having a follow-up. I meet with a lot of your people. 

And, chairman Micek, I appreciate what you are doing in those 
areas. I would like to follow up with you or your people about the 
emergency, and I will not belabor the Subcommittee by further 
questioning. 



129 


Thank you, Mr. Chairman. 

Chairman Crane. Thank you. 

And I want to thank all of the members of the panel, and again, 
we apologize to you for this chaotic day, but it is going to get worse, 
not better. And with that, we are going to stand in recess subject 
to the call of the Chair. 

[Recess.] 

Chairman Crane. Folks, the place has cleared out as I indicated 
before. It is going to remain kind of chaotic this afternoon. But we 
will get under way here. Our next panel includes William Weiller, 
chairman and chief executive officer of Purafil Inc., in Atlanta, and 
he is here on behalf of the National Association of Manufacturers; 
Steven Warshaw, president and chief operating officer, Chiquita 
Brands Corp., Cincinnati; Charles Lambert, chief economist. Na- 
tional Cattlemen’s Beef Association; Kathleen Ambrose, vice presi- 
dent, international affairs and co-leader of market access team. 
Chemical Manufacturers Association; and finally David Smith, di- 
rector, Public Policy Department, American Federation of Labor 
and Congress of Industrial Organizations. 

If you folks will please proceed in the order in which I presented 
you, and try and keep your oral testimony as close to about 5 min- 
utes as possible and then any printed statements will be made a 
part of the permanent record. 

And we will start out with you, Mr. Weiller. 

STATEMENT OF WILLIAM WEILLER, CHAIRMAN OF THE 

BOARD AND CHIEF EXECUTIVE OFFICER, PURAFIL, INC., AT- 
LANTA, GEORGIA, ON BEHALF OF THE NATIONAL ASSOCIA- 
TION OF MANUFACTURERS 

Mr. Weiller. Thank you, Mr. Chairman. My name is Bill 
Weiller. I am the owner and president of Purafil, a leading manu- 
facturer of air purification systems based in Atlanta, Georgia. I 
would like to thank you for the opportunity to testify before the 
House Ways and Means Committee on the upcoming World Trade 
Organization Ministerial and the impact of the WTO on small busi- 
nesses like Purafil. I am here on behalf of the National Association 
of Manufacturers and obviously also Purafil. 

Many might be surprised that Purafil, a small American busi- 
ness, about 70 employees, is even remotely interested in the World 
Trade Organization and its objectives. In fact, we often encounter 
the notion that global free trade is good for big companies and bad 
for the little guy. Small — and medium-sized businesses do not at- 
tract the headlines the multinationals do and often our success in 
a global economy go without notice. I am here to let you know that 
open trade is not only good for Purafil, it is the backbone of our 
business. 

In fact, Purafil is representative of many small businesses. I 
have attached a chart to my testimony which you may find inter- 
esting. In 1989 nearly half of the NAM’s small — and medium-mem- 
ber companies said they did not export. Today only 1 in 5 fall into 
that category. 

In other words, in the last 10 years the share of NAM’s small — 
and medium-member companies that export has gone from half to 
more than three-quarters and it is a 50-percent increase. Let me 



130 


just hammer the point home. In 1989 less than 10 percent of 
NAM’s small — and medium-member companies derived 11 percent 
or more of their revenue from exporting. Today that share has 
grown, doubled to more than 20 percent. That is an important 
change that has taken place over the past decade and Purafil has 
been part of it. 

So let me tell you about Purafil. We manufacturer air quality 
systems that remove odorous, corrosive, and toxic gases from the 
air. In short, we sell clean air. Our customers include petro- 
chemical companies like Saudi Aramco, Exxon, paper companies 
like International Paper, Stora, Weyerhaeuser, museums and ar- 
chives such as the Sistine Chapel, the Holocaust Museum, da 
Vinci’s Last Supper, or the U.S. National Archives. Despite our 
small size, Purafil is an industry leader in a niche market. Sixty 
percent of our sales are made outside of the United States. Export- 
ing is vitally important to Purafil. It is the cornerstone of our 
coporpate strategy. 

We have recognized that in order to survive and grow we have 
to export and become experts in doing international business. The 
problems that we solve are the same worldwide. A refinery in 
Baton Rouge experiences the same hazardous emissions from man- 
ufacturing processes as does a refinery in Saudi Arabia. If Purafil 
were not present to solve these problems, the increased demand for 
a solution would result in someone else from our foreign competi- 
tors gaining the business. Right now Purafil is the best in the 
world at solving air purification problems. We have few viable U.S. 
competitors that serve all the applications in markets that we do. 
That someone else could likely be a company from outside the U.S. 

The trade barriers we come across when trying to export to some 
countries are beyond the ability of any individual business to 
change. For example, Mr. Chairman, the tariff for our equipment 
to South Africa is 19 percent. In response to this, we signed a li- 
censing agreement with a local representative so they would build 
portions of our equipment in their country and remain competitive. 
That representative utilized the Purafil name and proceeded to dis- 
solve the relationship and become a low-cost, Purafil-educated com- 
petitor, leaving us with little recourse. 

We are facing similar high tariff situations in India, Brazil, 
China, Russia and others. Purafil will continue to do everything in 
its power to remain competitive. I am here today to ask you to do 
your part. Level the playingfield so our people, our technology, our 
products can compete in a global market. Don’t force us to compete 
with the lack of transparency, the lack of access, irregular rule of 
law and some of the trade barriers and tariffs currently in place. 

That is why we support the NAM’s leadership role in organizing 
a coalition to support the upcoming WTO Ministerial in Seattle. 
The Alliance for U.S. Trade Expansion, commonly referred to as 
U.S. Trade, encompasses an impressive broad-based group of agri- 
culture, consumer, manufacturing, retailing and service organiza- 
tions, representing $2 trillion in annual trade and over 150 million 
Americans. 

The coalition seeks to promote the benefits of economic growth, 
job expansion and higher living standards in the United States as 



131 


a result of free trade and specifically U.S. participation in the 
WTO. 

And while Purafil is a small piece of the overall coalition we are 
participating because we will continue to be successful only if we 
maintain our international customer base. In order to do that, we 
will depend on the reduction of tariffs and other trade barriers. A 
multilateral rules-based approach to trade, negotiated through the 
WTO, is strongly supported by Purafil. The United States should 
take a leadership role in the pursuit of free and fair trade through 
the WTO in order to support American business. 

Thank you. 

[The prepared statement follows:] 

Statement of William Weiller, Chairman of the Board and Chief Executive 

Officer, Purafil, Inc., Atlanta, Georgia, on behalf of the National Associa- 
tion of Manufacturers 

Good morning, Mr. Chairman. My name is Bill Weiller, I am the Chairman of the 
Board and CEO of Purafil, a leading manufacturer of air purification systems based 
in Atlanta, Georgia. I would like to thank you for the opportunity to testify before 
the House Ways and Means Committee on the upcoming World Trade Organization 
Ministerial and the impact of the WTO on small businesses such as Purafil. 1 am 
here on behalf of the National Association of Manufacturers (NAM), and obviously 
also for Purafil. 

Many might be surprised that Purafil, a small American business with about 70 
employees, is even remotely interested in the World Trade Organization and its ob- 
jectives. In fact, we often encounter the notion that global free trade is good for big 
companies and bad for “the little guy.” Small and medium-sized businesses do not 
attract the headlines the multinationals do, and often our successes in the global 
economy go without notice. I am here to let you know that open trade is not only 
good for Purafil, it is the backbone of our business. 

In fact, Purafil is representative of many small businesses. I have attached a 
chart to my testimony, which you may find interesting. In 1989, nearly half of the 
National Association of Manufacturers’ small and medium-sized member companies 
said they did not export. Today, only one in five fall into that category. In 1989, 
only 4 percent of those members earned more than 25 percent of their revenue from 
exporting and another 4 percent earned between 11 percent and 25 percent. Today, 
those percentages have more than doubled to 9 percent and 11 percent respectively. 
Let me just hammer that point home. Today, in NAM’s surveys we’re finding that 
exporting generates over 11 percent of the earnings for 1 out of every 5 exporters 
and over 25 percent for 1 out of every 10 of these smaller manufacturers. 'That is 
an important sea-change that has taken place over the past decade and Purafil has 
been a part of it. 

I’d like to tell you a little bit about my company. Purafil manufacturers air quality 
systems that remove odorous, corrosive and toxic gases. In short, we sell clean air. 
Our customers include paper mills in Argentina, Oklahoma and North Carolina. We 
protect valuable artifacts in the Netherlands, the Sistine Chapel, and in Wash- 
ington, DC. We service petrochemical refineries in Texas, Brazil, and Saudi Arabia. 
Despite our small size, Purafil is an industry leader in this niche market. 

Sixty percent of our sales are made outside of the United States. Exporting is vi- 
tally important to Purafil: it is the cornerstone of our corporate strategy. We are 
not a company that got into international sales by accident or solely as a reaction 
to market demand. We have recognized that in order to survive, to continue to pro- 
vide jobs to our employees, and to continue to fund the R & D efforts necessary to 
our success, we have to export and become experts in doing international business. 

The problems that Purafil can solve are the same worldwide. A refinery in Baton 
Rouge experiences the same hazardous emissions from manufacturing processes as 
does a refinery in Saudi Arabia. The Sistine Chapel protects its artwork from envi- 
ronmental degradation, as does the U.S. National Archives in Washington. Our in- 
tellectual property, considering our size, is significant. We have worked hard to take 
a technology that was developed in the U.S. about 30 years ago and have constantly 
refined and improved it. 

If Purafil were not present to solve these problems, the increased demand for a 
solution would result in foreign competitors gaining the business. Right now, Purafil 
is the best in the world at solving air purification problems. We have a technology 
that cannot be matched. Purafil has worked hard to stay on top of our industry, and 



132 


I fear that without exporting, someone else will take the lead. We have few viable 
U.S. competitors that serve all the applications and markets that we do. That 
“someone else” could likely he a company from outside the U.S. 

The trade barriers we come across when tr3dng to export to some countries are 
beyond the ability of any individual business to change. For example, Mr. Chair- 
man, the tariff for our equipment in South Africa is 19%. In response to this, we 
signed a licensing agreement with our local representative so they could build por- 
tions of our equipment in country and remain competitive. That representative uti- 
lized the Purafil name and proceeded to dissolve the relationship and become a low 
cost, Purafil-educated competitor, leaving us with little recourse. We are facing simi- 
lar high tariff situations in India, Brazil, China and others. One solution is to form 
licensing agreements in these countries, but in doing so, we dilute our profit mar- 
gins and make it easy for partners to eventually become competitors. 

Purafil will continue to do everything in its power to remain competitive. I am 
here today to ask you to do your part — level the playing field so our people, our 
technology and our products can compete in the global market. Don’t force us to 
compete with the trade barriers and tariffs currently in place. 

I don’t need statistics, studies or business experts to tell me that exporting creates 
jobs and is good for the economy. As a small business owner, I see it every day I 
go to the plant. I’m constantly reminded when I look at the shipments on our dock 
and see their final destinations. 

That is why we support NAM’s leadership role in organizing a coalition to support 
the upcoming WTO Ministerial in Seattle. The U.S. Alliance for Trade Expansion, 
commonly referred to as “US Trade,” encompasses an impressive broad-based group 
of agriculture, consumer, manufacturing, retailing and services organizations rep- 
resenting $2 trillion in annual trade and over 150 million Americans. The coalition 
seeks to promote the benefits of economic growth, job expansion and higher living 
standards in the United States as a result of free trade and specifically U.S. partici- 
pation in the WTO. 

While Purafil is a small piece of the overall coalition mentioned above, we are par- 
ticipating because we will continue to be successful only if we maintain our inter- 
national customer base. In order to do that, we will depend on the reduction of tar- 
iffs and other trade barriers. A multilateral, rules-based approach to trade, nego- 
tiated through the WTO, is strongly supported by Purafil. The United States should 
take a leadership role in the pursuit of free and fair trade through the WTO, in 
order to support American business. 

Thank you. 




'Source: NAM Small Manufocturers Operating Suruey, 1989 and 1998 


Chairman Crane. Our next witness, Mr. Warshaw. 


L33 

Survey of NAM Small/Medium Members 





134 


STATEMENT OF STEVEN G. WARSHAW, PRESIDENT AND CHIEF 

OPERATING OFFICER, CHIQUITA BRANDS INTERNATIONAL, 

INC., CINCINNATI, OHIO 

Mr. Warshaw. Mr. Chairman, my name is Steve Warshaw. I am 
president and chief operating officer of Chiquita Brands Inter- 
national. Chiquita Brands brings a unique perspective to these 
issues, being one of a very small group of American companies to 
have experienced every step of the WTO process from beginning to 
an end that never occurs. 

In 1994, as Congress debated U.S. accession to the WTO, Under- 
secretary of Commerce Jeffrey Garten made the following state- 
ment: “The new WTO dispute settlement process will be much 
more effective than that of the old GATT system. Whereas in the 
past, parties could interminably delay the resolution of disputes, 
dispute settlement procedures will now be subject to strict dead- 
lines and the adoption of panel findings will be binding and all but 
automatic.” 

Clearly the banana and recent beef cases are proof that the dis- 
pute settlement process has not lived up to that promise. Injured 
parties can litigate for years, win their cases and still not be com- 
pensated for damages. 

The EU has lost two GATT rulings and four WTO rulings in the 
banana case, but its illegal banana trade practices remain in effect 
today. Chiquita Brands and Latin American economies continue to 
be harmed. The WTO calculated that Europe’s illegal actions have 
cost U.S. interests alone $191.4 million annually, almost all of 
which has been borne by Chiquita Brands. 

When any company suffers annual losses of this magnitude, 
timely relief becomes essential. The WTO procedures alone took 
3 V 2 years just to get to the point of retaliation and there is still 
no relief. After the U.S. won a favorable ruling in the banana case, 
Europe was entitled to continue its illegal practices for another 15 
months. This 15-month grace period alone caused $270 million of 
additional injury to our interests. At the end of that period, the EU 
was able to claim that it was in compliance, even though it was 
not, as a way of further prolonging the procedures. 

Such a system provides absolutely no incentive for prompt com- 
pliance. In reality it rewards delays, obstruction and noncompli- 
ance. And so, Europe has delayed, blocked, evaded, argued, ap- 
pealed, vetoed and repeatedly sought ways to avoid its obligations 
under international trade rules. 

The only tool for reversing noncompliance under the WTO is re- 
taliation. In order to accomplish its objective of inducing compli- 
ance, it needs to be effectively applied. To date, the banana and 
beef retaliatory actions against Europe have been unsuccessful by 
any standard or measure. Five months after retaliation took effect 
in the banana case Europe is still proposing WTO inconsistent ba- 
nana arrangements. In the beef case Europe is promising never to 
lift its ban. 

Their continuing obstruction has persuaded several U.S. farm 
groups that static retaliation is not sufficient leverage. In order to 
increase internal pressure to comply, we recommend that retalia- 
tion targets within Europe be rotated at regular intervals. We be- 
lieve this so-called “carousel retaliation” approach would be en- 



135 


tirely consistent with WTO law and urge the Trade Subcommittee 
to insist on its use to bring disputes to their proper conclusion. 

As this Subcommittee considers the critical issue of dispute set- 
tlement in the months leading up to the Seattle Ministerial, we 
urge you to examine the serious flaws that have emerged as a re- 
sult of the banana and beef disputes. The banana case in particular 
offers several valuable lessons. This has become the most litigated 
trade issue in the history of dispute settlement. The United States 
and the Latin Americans have won every major round. The rulings 
have been unambiguous, decisive and precedent setting and still, 
despite more than 6 years of successful decisions in the GATT and 
WTO, Europe’s illegal practices continue. 

If the shortcomings raised in the banana and beef disputes are 
resolved, the WTO can still live up to the promise that former Un- 
dersecretary Garten described and that Congress endorsed. But un- 
less they are resolved and existing rulings and agreements are en- 
forced, new agreements should not be pursued. Chiquita Brands is 
eager to assist the Trade Subcommittee in addressing these critical 
issues in the coming months. 

Thank you, Mr. Chairman. 

[The prepared statement follows:] 

Statement of Steven G. Warshaw, President and Chief Operating Officer, 
Chiquita Brands International, Inc., Cincinnati, Ohio 

Mr. Chairman and Members of the Committee, my name is Steve Warshaw. I am 
President and Chief Operating Officer of Chiquita Brands International. 

As this Committee knows, the Banana case — for reasons quite apart from ba- 
nanas — has become important for what it says about the WTO system. The case 
makes clear the imperative for more effective, streamlined procedures; for good faith 
compliance on the part of all WTO members; for more effective application of retal- 
iation; and, above all, for a system that delivers measurable relief to the injured 
U.S. commercial interests. 

Chiquita Brands brings a unique perspective to these issues, being one of a very 
small group of American companies to have experienced every step of the WTO proc- 
ess from beginning to an end that never seems to occur. It is my hope that our com- 
pany’s experience can contribute constructively to the national debate and congres- 
sional focus in the months leading up to the Seattle WTO Ministerial. 

The Need for More Effective, Streamlined Procedures 

More than five years ago, as Congress debated U.S. accession to the WTO, Under- 
secretary of Commerce Jeffrey E. Garten made the following statement: 

“The new World Trade Organization dispute settlement process will be much 
more effective than that of the old GATT system. Whereas in the past, parties could 
interminably delay the resolution of disputes, dispute settlement procedures will 
now be subject to strict deadlines and the adoption of panel findings will be binding 
and all but automatic.” 

Clearly, the Banana case is proof that the WTO system and its dispute settlement 
process have not lived up to that promise described by former Undersecretary 
Garten. In fact, what this case — and the recent Beef case — show is that the WTO 
has a dispute uou-settlement procedure. Injured parties can litigate for years, win 
their cases, and still not be compensated for damages as the illegal trade practices 
continue unimpeded. 

Let me briefly review the history of the six-year Banana case, which has taken 
away more than half of our 100-year-old European business, and inflicted serious 
economic injury on many of the poorer banana-producing nations of Latin America 
at a time when these developing countries were being required to open their mar- 
kets and abide by new trade obligations. 

• In 1993, the EU instituted an illegal banana policy that systematically and de- 
liberately destroyed much of Chiquita Brands market share in Europe. 

• In late 1993, the GATT ruled that the EU banana policy violated trade agree- 
ments. In response, the EU blocked the GATT ruling and maintained its illegal 
practices. 



136 


• In 1994, the GATT again ruled that the EU hanana policy was illegal. In re- 
sponse, the EU again blocked this second GATT ruling and maintained its illegal 
practices. 

• In May 1997, using new trade rules, the WTO found that the EU banana policy 
violated the WTO. In response, the EU appealed the ruling and continued its illegal 
practices. 

• In September 1997, a WTO appeals panel reiterated the ruling that the EU ba- 
nana policy contained more illegalities than virtually any other policy ever reviewed 
in dispute settlement. Having exhausted its appeal process, the EU finally changed 
its banana policy — by making it more illegal and more damaging to U.S. interests. 

• In March 1999, at the request of the United States, the WTO determined that 
the EU’s “new” banana policy also violated WTO rules. In response, the EU ignored 
the WTO and maintained its illegal practices. 

• In April 1999, when the United States imposed punitive tariffs against Europe 
in retaliation, the EU ignored the action. 

To this day, Europe’s illegal banana trade practices remain in effect. Chiquita 
Brands and Latin American economies continue to be harmed. The adverse impact 
to our business has been substantial. 

The WTO calculated that Europe’s illegal actions have cost U.S. interests $191.4 
million annually — almost all of which has been borne by Chiquita Brands. The U.S. 
government and our company believe that number, which was determined by an ar- 
bitration panel, is far below actual U.S. and Latin loses. 

When any company suffers annual losses of this magnitude, timely relief becomes 
essential. The WTO procedures alone took three and a half years just to get to the 
point of retaliation, and there is still not resolution or relief. This timetable is en- 
tirely too long when significant injury is compounded year after year. By author- 
izing prolonged delays, the WTO effectively legitimizes evasion, obstruction, and 
runaway injury to the prevailing party. How many American companies, farmers or 
industries could sustain that amount of injury for that amount of time? 

The delays are all the more frustrating because they arise for inequitable and il- 
logical reasons. In the Banana case, for example, consistent with standard WTO 
procedures, even after the United States received a favorable ruling, Europe was en- 
titled to continue its illegal, harmful practices for another 15 months. To make mat- 
ters worse, WTO rules prohibited the United States from scrutinizing Europe’s so- 
called compliance or plans for a “new” banana policy during those 15 months. As 
a result, at the end of that period, the EU was able to claim that it was in compli- 
ance, even though it was not, as a way of further prolonging the procedures and 
its illegal trade practices. 

Using the WTO’s own injury calculations, the aggregate harm done to our inter- 
ests during the multi-year period from when the WTO procedures first began to the 
date retaliation took effect was $670 million. The EU’s 15-month grace period — that 
is, the period after the favorable ruling — alone caused $270 million of additional in- 
jury to our interests. 

Under present WTO rules, Chiquita Brands can never recover the damages in- 
curred during those periods. Relief, if provided, will be strictly prospective, with no 
retroactive penalty imposed on Europe for the damage it has caused in the mean- 
time. Such a system provides no incentive at all for prompt compliance and every 
incentive for protectionist member countries to gain a lasting commercial edge over 
U.S. interests without fear of penalty or economic consequence. In reality, the WTO 
procedures reward delays, obstruction and non-compliance: European banana inter- 
ests continue to earn illegally conceived profits. There is no mystery in why the EU 
continues to procrastinate and evade compliance with GATT and WTO rulings. 

The Need for Good Faith Compliance 

Another major concern arising from the Banana case is one that Ambassador 
Barshefsky has described as Europe’s “30-year pattern of refusing to accept panel 
decisions.” Nowhere is that pattern more apparent than in the Banana case. 

Under the old GATT, the EU blocked two banana panel rulings. New WTO rules 
were supposed to prevent such tactics. However, even under the WTO, the EU has 
continued to do everything possible to avoid compliance. 

For decades, the EU has demonstrated this pattern of protectionism and prevari- 
cation. In case after case, Europe has delayed, blocked, evaded, argued, appealed, 
vetoed and repeatedly sought ways to avoid obligations under international trade 
rules. It has happened on citrus, pasta, canned fruit, soybeans, beef, and bananas. 
The list goes on, and so do Europe’s unlawful trade practices. 

For Chiquita, the problem of chronic non-compliance threatens our business. For 
the WTO system, the stakes are equally high. If Europe, the largest WTO member. 



137 


continues its pattern of non-compliance, legitimate questions will be raised about 
the real value of the WTO. 

The Need for More Effective Retaliation 

The only tool for reversing non-compliance under the WTO is retaliation. When 
WTO-sanctioned retaliation is imposed, it must be applied in a way that induces 
compliance as quickly as possible. If retaliation is the end-result, the injured peti- 
tioning interest gets no relief and the entire multi-year litigation process becomes 
futile. 

To date, the Banana and Beef retaliatory actions against Europe have been un- 
successful by any standard. Five months after retaliation took effect in the Banana 
case, Europe is still proposing WTO-inconsistent banana arrangements. In the Beef 
case, Europe is promising never to lift its ban. 

Europe’s response to these retaliations has persuaded the American Farm Bu- 
reau, the National Cattlemen Beef Association, the American Meat Institute, the 
U.S. Meat Export Federation, the Hawaii Banana Industry Association and 
Chiquita Brands that static retaliation is not sufficient leverage. In order to increase 
internal pressure to comply, we recommend that retaliation targets within Europe 
be rotated at regular intervals. Because the overall level of retaliation against Eu- 
rope would not change, we believe this so-called “carousel retaliation” approach 
would be entirely consistent with WTO law. We urge the Trade Subcommittee to 
insist on the use of carousel retaliation in order to bring these cases — and future 
disputes — to their proper conclusion. 

The Need for Measurable Relief to the Injured U.S. Industry 

Ultimately, the proper and equitable conclusion of dispute settlement must be full 
WTO compliance and the delivery of quantifiable relief to the petitioning U.S. indus- 
try. Chiquita, like other U.S. companies and farmers, has availed itself of dispute 
settlement with that singular objective in mind. U.S. interests, particularly agricul- 
tural interests, have often made the point that if prominent cases like Bananas and 
Beef are not resolved in a way that produces a fair outcome and tangible relief, 
WTO dispute settlement will inevitably lose its appeal. 

This overriding imperative has not yet been grasped by the European Commis- 
sion, which continues to propose certain new banana arrangements that would in 
fact increase injury to Chiquita Brands. Congress and the Administration need to 
reinforce in the clearest way possible the message to Europe that dispute settlement 
is intended to accord commercial relief from illegal practices and that outcomes that 
fall short of that objective will be unwelcome and of no help in lifting U.S. retalia- 
tion. 

Conclusion 

America’s agricultural sector is the most productive and competitive in the world. 
Despite this fact, some of our nation’s most important export markets are being sto- 
len away by illegal trade practices. We don’t permit America’s intellectual property, 
patents, or high technology industries to be subjected to such treatment, and we 
shouldn’t allow it in agriculture. 

As this Subcommittee considers the critical issue of dispute settlement in the 
months leading up to the Seattle Ministerial, we urge you to examine the serious 
flaws that have emerged as a result of the Banana and Beef disputes. These cases 
provide concrete examples of the obstacles that any U.S. interest could encounter 
when taking on unfair practices by the EU. 

Unless solutions to these inadequacies can be found prior to the WTO Ministerial 
Meeting, many will question the value of new agreements, given that existing ones 
cannot be enforced. On the other hand, with proper attention to the concerns raised 
in the Banana and Beef disputes, the WTO can still live up to the promise that 
former Undersecretary Garten described and that Congress endorsed. Chiquita 
Brands is eager to assist the Trade Subcommittee in addressing these critical issues 
in the coming months. 


Chairman Crane. Thank you. 
Our next witness, Mr. Lambert. 



138 


STATEMENT OF CHARLES D. “CHUCK” LAMBERT, PH.D., AND 

CHIEF ECONOMIST, NATIONAL CATTLEMEN’S BEEF ASSO- 
CIATION 

Mr. Lambert. Thank you, Mr. Chairman and Members of the 
Subcommittee, for holding hearings on issues that are vitally im- 
portant to American agriculture. I am Chuck Lambert, chief econo- 
mist of the National Cattlemen’s Beef Association. Exports of meat 
and grains are imperative for the United States. We have only 4 
percent of the world’s population but a large share of the world’s 
production agriculture. 

One of the underlying premises of the 1996 Freedom to Farm bill 
was that aggressive pursuit of growing export markets would re- 
place the safety net of traditional farm programs. There must be 
followthrough by Congress and the administration on this obliga- 
tion. 

The Seattle Round of trade talks will be a defining moment for 
world agriculture trade. Success of the Seattle Round dictates that 
the U.S. take the high road to expanded exports and freer trade 
with less dependence on government assistance. The near agree- 
ment with China last April was a good one. Hopefully it will be 
completed and set the benchmark for tariff reduction and market 
access for WTO members to follow in November. 

NCBA supports three process objectives for the negotiations as 
follows. Set the 3-year time line for concluding the negotiations, no 
product or policy exemptions, and three, conclude with a single 
agreement that encompasses all sectors. There is a perception 
among many in agriculture that past negotiations often traded ag- 
ricultural interests for other priorities. NCBA and other agricul- 
tural organizations strongly object to the finalization of agreements 
in any other sector until agreements in agriculture are concluded. 
From the parochial view of the beef industry, the overall objective 
of U.S. trade policy is to maintain and increase access to existing 
markets for U.S. beef and to gain access in emerging markets. 

NCBA supports addressing the specific points regarding the up- 
coming WTO negotiations. Prevent the EU from rolling back 
progress made during previous agreements. Ensure that science re- 
mains the only basis for resolving the SPS agreements. Protect 
science-based technologies and establish transparent science-based 
rules. Eliminate state trading entities. Negotiate reduction and 
eventually elimination of production-distorting price supports, and 
I will add here including those that are currently insulated in the 
blue box, and eliminate export subsidy programs. Establish a tar- 
get date for reducing all tariffs to zero, and until that elimination 
can take place, continue tariff reduction and expands tariff rate 
quotas to permit continued growth in exports. 

U.S. beef entering many Asian markets still faces close to a 40- 
percent tariff. In Europe, we face a 20-percent tariff and that is 
within a very small quota of 11,500 metric tons, even if we had all 
of our other issues resolved. Prices still drives the effective demand 
for our product, and tariffs increase price. Continued tariff reduc- 
tion is critical. 

I am clearly aware of the administration and other sector posi- 
tions regarding dumping. But the fact is the current definition of 
dumping does not make sense for many agricultural commodities. 



139 


Cyclical commodities, including beef, have periods of low prices. 
Often those prices are helow the cost of production for most of the 
industry. That is why our industry is cyclical. By WTO definition 
the heef industry may be considered to be dumping during periods 
of low prices, even in the absence of evidence of predatory behavior, 
intention to monopolize or other efforts to drive competitors out of 
business. 

Under the current definition, U.S. dumping suits were filed in 
1998 against cattle from Canada and Mexico. In return Mexican 
feeders and processors filed a dumping case against heef and cattle 
from the United States. Mexico announced tariffs as high as 215 
percent just last Monday for some exporters of some U.S. products. 

Among the strengths of the current WTO system is a well de- 
fined process for initiating a case for determining the final ruling. 
The current — the strict, science-based rules established for resolv- 
ing these issues is another major strength. The primary weakness 
of the current system is the absence of an enforcement mechanism 
to assure compliance once the ruling is issued. Canada and the 
United States painstakingly followed the WTO dispute settlement 
process for changing regulations to come into compliance with the 
WTO ruling. 

No one wins in trade wars, and our preference is for access. All 
we ask is for Europe to give their consumers a choice. Our nego- 
tiators with our advice and consent have offered labeling beef as 
a product of the U.S. to the EU with no success. 

If Europe continues to thumb its nose at this science-based proc- 
ess, the WTO is in jeopardy of losing its credibility. Thank you for 
the opportunity to present this information. 

[The prepared statement follows:] 

Statement of Charles D. “Chuck” Lambert, Ph.D., and Chief Economist, 
National Cattlemen’s Beef Association 

Thank you Chairman Crane and the Subcommittee for holding hearings regarding 
issues to be addressed in the 1999 Seattle Ministerial meeting. NCBA commends 
your continuing efforts to improve the export outlook for U.S. agricultural products. 
I am Chuck Lambert, Chief Economist for the National Cattlemen’s Beef Associa- 
tion, 


Importance of Trade: 

Beef and pork producers have always avoided the traditional supply management 
and price support programs, and therefore, had the “freedom to farm” as well as 
“freedom to fail.” Livestock producers add value to grain produced by our neighbors 
by feeding it through our livestock. 

Livestock producers are becoming increasingly dependant on the rest of the world 
to buy our products. Exports of meat and grains make sense for the US, a country 
that has only 4 percent of the world’s population, but a large share of the world’s 
production agriculture. Exports of beef have helped to take up the slack of declining 
demand for beef at home. We, as an industry, have worked hard to promote beef 
exports which now account for over 12 percent of the value of wholesale beef sales. 
On a tonnage basis, we export 8-9 percent of what we produce. 

The 1998 calendar year — a year of recession in most Asian markets — was the first 
time that more than one million metric tons of US beef and beef variety meats have 
been exported. Compared to 1997, exports of beef and beef variety meats during 
1998 increased of 4.75 percent on a volume basis but declined 5.44 percent on a 
value basis as U.S. beef prices declined and international customers shifted to a 
lower-price mix. As an industry, we have expanded exports of beef and beef variety 
meats from about one-half billion dollars twenty years ago, to approximately $3 bil- 
lion today. During the first five months of 1999, beef exports increased 6.43 percent 
on a volume basis and 6.56 on a value basis compared to the same time in 1998. 



140 


The Seattle Round of world trade talks will be the defining moment for world ag- 
ricultural trade. The US beef industry has worked hard to expand sales of our prod- 
uct in the younger, fast growing, overseas markets. In spite of record US meat ex- 
ports and efforts of most commodity organizations to expand exports, prices for 
nearly all US agricultural products remain very low. 

There is a perception among many in agriculture that past GATT and WTO 
rounds often traded agricultural priorities for other priorities and left US crop and 
livestock producers facing high tariffs and a host of non-tariff trade barriers in over- 
seas markets while opening US markets to imports. One of the underlying premises 
of the 1996 “Freedom to Farm Bill” was that aggressive pursuit of growing export 
markets would be a critical strategy to replace the safety net of traditional farm pro- 
grams. The pursuit of export markets includes eliminating trade barriers and this 
must be a successful part of the next round. 

Success of the Seattle Round means that the US must take the high road to ex- 
panded exports and free trade, with less dependence on government assistance. Fail- 
ure to follow this course will take us down the road to protectionism — if not isola- 
tionism — trade wars and a return to costly government supply management and 
price support farm programs. The near-agreement with China last April, if finalized, 
would set a good example for other countries for reducing trade barriers. If the 
agreement with China — which would be contingent upon approval of permanent 
Normal Trading Relations — can be finalized it will set the pace for all of the WTO 
countries to follow in November. The proposed China agreement would allow for: 

• a bilateral Sanitary/Phytosanitary agreement for China to accept all USDA ap- 
proved processing plants as eligible to ship to China. This bilateral agreement has 
been finalized, but its impacts will depend on finalization of the overall trade pack- 
age with China. The proposed overall package would allow for the following with 
respect to the beef industry: 

• duties on certain beef items to decline from 45 percent to 12 percent over a five- 
year period 

• a commitment not to subsidize domestic agricultural products 

• US investment in distribution, wholesaling, retailing, and transportation 

Objectives For The 1999 WTO Negotiations 

NCBA, in conjunction with nearly 60 other agricultural and food sectors, ex- 
pressed support for launching a comprehensive round of multinational trade nego- 
tiations in an April 1, 1999 letter to President Clinton. The group specified three 
process objectives for the negotiations, as follows: 

• Establish a three-year goal for concluding the negotiations. 

• Adopt the Uruguay Round framework for the 1999 agricultural negotiations so 
there are no product or policy exceptions. 

• Conclude with a single undertaking that encompasses all sectors. 

NCBA and other agricultural organizations strongly object to the conclusion and 
implementation of agreements in any other sector until agreements in agriculture 
are finalized. Many other countries have remained very protectionist of agriculture 
while negotiating expanded trade in other sectors. Unless there is a reciprocal open- 
ing of agricultural markets there will be very little support within the agricultural 
community for these trade agreements in other sectors. 

NCBA and the U.S. beef industry believe that the overall policy objective for U.S. 
trade is to maintain and increase access to existing markets for U.S. beef, beef by- 
products and other industry-related products and to gain access in emerging mar- 
kets for these products. NCI5A and other meat industry groups support the following 
specific points to be addressed during the 1999 round of WTO negotiations: 

• Prevent the EU from rolling back progress made during the previous GATT 
agreement. Enforcement of the strict science-based trading rules established in the 
Uruguay Round Agreement on Sanitary and Phytosanitary Measures (the SPS 
Agreement) is critical to continued expansion of U.S. beef exports. 

• Ensure that science remains the only basis for resolving SPS issues. To ensure 
this outcome, the red meat industry does not support opening the SPS Agreement 
for further negotiation in the next trade round. 

• Protect scientifically approved technologies, such as Genetically Modified Orga- 
nisms (GMOs) and beef growth promotants that enhance production efficiency or 
food safety by establishing transparent, science-based rules. 

• Eliminate State Trading Entities (STEs) and increased access to wholesale and 
retail trade in importing countries (especially relevant in China, Australia and Can- 
ada) 

• Reduce and eventually eliminate production-distorting price supports and ex- 
port subsidy programs. In addition, stricter disciplines and tougher enforcement 



141 


mechanisms should be established to prevent the emergence of new schemes to cir- 
cumvent WTO rules. 

• Continue to reduce tariffs and expand Tariff Rate Quotas (TRQs). Existing du- 
ties in key export markets such as Japan and Korea must be reduced to single digit 
levels and a target date must be established for reducing all tariffs to zero. Until 
elimination of duties can be accomplished, existing tariff rate quotas must continue 
to be expanded to permit continued growth in exports. 

From the beef industry perspective the last point may be the most crucial. US 
beef entering many markets for US beef in Asia (Japan, Korea, and China) still 
faces close to a 40 percent tariff. Price still drives the effective demand for our prod- 
uct. If one looks at Mexico, you can see what the effects of eliminating tariffs of 20 
to 25 percent did in that market after NAFTA was initiated — even with the 50 per- 
cent devaluation of the peso in late 1994. While we have done well in the Asian 
countries, tariff reduction must he one of the main keys to exporting more red meat 
to countries with high tariffs. 



US Beef and Beef Variety Meat Exports to 
Mexico 


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300 

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200 

150 

100 

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Definition of Dumping: 

The beef industry is driven by supply and demand and these forces determine the 
market price for beef. Market-driven industries traditionally run in cycles, and most 
beef producers periodically sell below the cost of production (at a loss) during the 
high production/low price periods of the cattle cycle. Indeed, it is these low prices 
and industry losses that result in herd reduction and declining supplies. These peri- 
ods of cyclical low prices and producer losses in the beef industry meet the definition 
of dumping under current WTO rules — even in the absence of evidence of predatory 
behavior, intention to monopolize, or other intentional efforts to drive competitors 
out of business. 

Producer unrest has resulted from low prices for agricultural commodities and the 
threat of protectionism is rearing its ugly head. The storm clouds of unrest include 
calls for dumping lawsuits, blockading borders and other retaliatory measures to re- 
strict trade. The current definition of dumping under WTO rules does not make 
sense for commodity markets like beef because one of the criteria to file a dumping 
case is that the commodity must be sold below the cost of production in the import- 
ing country. 

Under the current WTO definition of dumping, suits were filed against Canada 
and Mexico in 1998 and in return, Mexican feeders and processors filed a dumping 
case against the United States. Mexico announced tariffs as high as 215 percent just 
last Monday (August 2, 1999) for some exporters of some heef products. These cases 
were the fallout of cyclically low market prices related to supply and demand and 
had nothing to do with predatory behavior, monopoly practices or the intention of 





142 


beef producers in one country to drive other producers out of business. The bottom 
line is that these cases will cost the beef industry scarce resources to defend without 
addressing the base cause of low prices. Ultimately, these cases will lead to less effi- 
cient trade patterns without significantly increasing producer profitability. During 
future negotiations NCBA supports changing WTO rules that define beef dumping 
to include factors other than selling below the cost of production. 

Maintain Integrity of the WTO — Fortress Europe: 

Existence of a well-defined process for initiating a case and for determining the 
final ruling 

is among the strengths of the current WTO system. The current system is much 
improved from its GATT predecessor in this respect. The strict science-based rules 
established for resolving these issues is another major strength of the current dis- 
pute settlement process. The primary weakness of the current system is the absence 
of an enforcement mechanism to assure compliance once the ruling is issued. 

The US has been unfairly locked out of the European beef market for more than 
10 years by a thinly veiled trade barrier commonly referred to as the EU hormone 
ban. During the past decade, the EU has not been able to cite scientifically valid 
reasons for the ban. The U.S. filed its formal complaint with the WTO in January 
1996, claiming the beef ban was a non-tariff trade barrier. Argentina, Australia, and 
New Zealand joined the United States in the action while Canada filed a separate 
case. Canada and the United States painstakingly followed the WTO dispute settle- 
ment process for three and one-half years before retaliation finally began on July 
29, 1999. Negotiations continue. 

The objective of U.S. the beef industry has always been to re-gain access to the 
European beef market, not retaliation. No one wins trade wars and that the US beef 
industry preference is for access. All we ask is for Europe to give their consumers 
a choice. The industry has agreed to label US beef as a “product of the US” or as 
“USDA inspected and approved” as negotiating alternatives with no success. The 
same issues will be raised regarding BT corn, or Roundup-ready soybeans and other 
technologies that that have been proven safe. 

The European response raises the question, “what do we do with a country that 
has agreed to a set of rules on trade, refuses to live by them, but expects other coun- 
tries to comply?” If Europe continues to thumb their nose at this science based proc- 
ess, the whole WTO may be in jeopardy of losing its credibility. 

Many U.S. cattlemen have a perception that the EU is undermining the current 
system and has perfected the stall and delay tactic with immunity. Many are asking 
why the U.S. continues to participate in a system that does not provide a clear and 
prompt resolution to trade disputes. This growing loss of confidence and increasing 
distrust has resulted in declining grassroots support for trade and trade negotia- 
tions in general. 


WTO Dispute Settlement Process Modification: 

Shortening the WTO dispute settlement process or providing for a mechanism 
that allows the winning party to be compensated while the losing party delays im- 
plementation may be alternatives. Perhaps some type of escrow account or bonding 
requirement could be established so the defending party would begin paying when 
the initial ruling is made. Alternatively, the amount of injury could be established 
at the time that the “reasonable period” is determined with the amount of injury 
dependant on the length of time it takes for the losing party to come into compli- 
ance. 

Under the current system, compensation or retaliation only starts once the entire 
process is completed and the injured party is not reimbursed for losses incurred dur- 
ing or prior to the case. There is no incentive for early settlement by the losing 
party. In fact, the current system rewards blatant stall and delay tactics. The prob- 
lem tends to be more with the current dispute settlement process because the losing 
party only has to pay for future losses and the payments won’t begin as long as the 
process can be strung out. 

Another alternative supported by the beef industry and others is for the retalia- 
tion list to be revised periodically — often referred to as carousel retaliation. Under 
the current system, the countries and the commodities that are not affected by retal- 
iation breathe a sigh of relief and there is no further political pressure from these 
entities for change. If the list of affected commodities were subject to change on a 
random basis no countries or commodities would be exempt with certainty. Uncer- 
tainty would continue to generate pressure from all parties for changing regulations 
to come into compliance with the WTO ruling. 



143 


A Clear Plan: 

It is clear that Congress and the Administration do not have a unified strategy 
to systematically attack the trade problems of US agriculture as part of the upcom- 
ing negotiations. The inability to secure approval of “fast track” continued negoti- 
ating authority prior to the Seattle Ministerial meeting is testimony to this void. 
A^icultural producers are justifiably concerned about sending a team to the negoti- 
ating table that has a more consistent track record of in-fighting among Congres- 
sional and Administrative ranks rather than engaging the opposition. 

The U.S. must hold its trading partners to commitments agreed to in previous 
trade agreements or risk losing public support for additional trade negotiation au- 
thority. Without fast track authority, the U.S. will lose the initiative in gaining ac- 
cess to emerging markets and enforcing existing trade agreements. 

The National Cattlemen’s Beef Association is prepared to participate in the proc- 
ess of evaluating critical trade issues within the beef industry. NCBA looks forward 
to providing additional input as the U.S. addresses other trade issues, including ac- 
cession of China to the WTO and approving legislation to provide authority for nego- 
tiating additional trade agreements. Thank you for the opportunity to present this 
information. 


Chairman Crane. Thank you Mr. Lambert. Our final witness, 
Ms. Ambrose. 

STATEMENT OF KATHLEEN A. AMBROSE, VICE PRESIDENT, 

INTERNATIONAL AFFAIRS, AND CO-LEADER, MARKET AC- 
CESS TEAM, CHEMICAL MANUFACTURERS ASSOCIATION, AR- 
LINGTON, VIRGINIA 

Ms. Ambrose. Thank you, Mr. Chairman. I am Kathleen Am- 
brose, vice president for international affairs of the Chemical Man- 
ufacturers Association. I have spent more time sitting in the staff 
chairs behind you, Mr. Chairman, than I have on this side of the 
aisle but I appreciate the opportunity to testify today before this 
Subcommittee. 

CMA is a nonprofit trade association whose 190 members rep- 
resent 90 percent of the productive capacity for basic industrial 
chemicals in the United States. If I leave you with any thought 
today, I would like to leave you the following thought, and the fol- 
lowing information: The U.S. chemical industry is America’s largest 
exporting sector. We, in 1998 alone, contributed $13.4 billion to the 
positive trade surplus on our more than $68 billion in export sales. 
Therefore we have a large stake in the next round of trade negotia- 
tions. 

CMA and its member companies support the launch of a new, 
broad-based and flexible round of trade negotiations to be launched 
in Seattle and a negotiation process that allows for individual 
agreements to be implemented as they are completed. We are “teed 
up”, as they say, as an accelerated tariff liberalization sector. We 
have worked with the other ATL sectors to offer a position that 
would bridge the gap that we have just been describing here today 
brought to you both by the USTR’s office and by my counterparts 
even on this panel. We strongly believe that early results in the 
round will not jeopardize the concept of single undertaking and 
that the objectives of the round can be accomplished if we all work 
together. 

CMA’s highest priority is increased country participation in the 
Chemical Tariff Harmonization Agreement. We have worked with 



144 


USTR through the Early Voluntary Sector Liheralization process 
both in APEC and then as it became ATL to move to the WTO. It 
is designed to be building on our current agreement that was com- 
pleted in the Uruguay round. Our view is that expanding the 
Chemical Tariff Harmonization Agreement to include additional 
countries that are chemical producers can be accomplished as an 
early result of the round and that at the end of the day, the single 
undertaking concept can be fully accommodated within the upcom- 
ing round. 

It is essential that the timing of achieving results during the ne- 
gotiations not be confused with the objective of a single under- 
taking at the conclusion of the round. Use of a common crediting 
mechanism that keeps a running total of all liberalization and a 
provisional implementation schedule will enable us to recognize 
that all WTO members at the end of the day must take on the obli- 
gations of all WTO Agreements. 

Achieving results in the ATL sectors provisionally with binding 
results at the end of the negotiations increases rather than de- 
creases the chance that all parts of the American business commu- 
nity will devote their energies toward completing a beneficial, 
broad-based round that is in the United States economy’s interest. 

The worldwide chemical industry is united in its endorsement of 
a new WTO round through these mechanisms. In June, the Inter- 
national Council of Chemical Associations for which I serve as the 
Secretariat, a Coalition of Chemical Industry Associations of the 
United States, the European Union, Japan, Canada, Mexico, Ar- 
gentina, Brazil, New Zealand, and Australia, endorsed the goal of 
elimination of all chemical tariffs in the next WTO round. It stated 
that new rounds should build on the sectoral negotiations that 
have been going on for the last 3 years in APEC. And, in addition, 
it supported the concept of early results so long as at the end of 
the day all WTO members assume the obligations of the round in 
the concept of single undertaking. 

In addition, the ICCA called for the establishment of a global bal- 
anced and beneficial investment regime, advocated rules under the 
WTO for trade facilitation and sought full implementation of the 
existing TRIPs agreement. The ICCA also urged clarification of the 
relationship between multilateral environmental agreements and 
the WTO rules. 

In summary, Mr. Chairman we support the launch of a new 
WTO round that will be broad-based and that will benefit the full 
American economy. 

Thank you for this opportunity today. 

[The prepared statement follows:] 

Statement of Kathleen A. Ambrose, Viee President, International Affairs 

and Co-Leader, Market Aeeess Team, Chemieal Manufacturers Associa- 
tion, Arlington, Virginia 

Good morning. I am Kathleen A. Ambrose, Vice President, International Affairs 
and Co-Leader of the Market Access Team, of the Chemical Manufacturers Associa- 
tion (CMA). 

CMA is a non-profit trade association whose 190 member companies represent 90 
percent of the productive capacity for basic industrial chemicals in the United 
States. The U.S. chemical industry is a keystone of the U.S. economy and America’s 
largest exporting sector. In 1998 alone, the industry tallied a $13.4 billion trade sur- 
plus, generating more than $68 billion in export sales. Chemical exports easily out- 
paced U.S. agricultural exports of $51 billion and aircraft and parts exports of $50 



145 


billion. U.S. chemical companies produce over 2% of America’s Gross Domestic Prod- 
uct (GDP) and keep more than 1 million Americans at work. The chemical indus- 
try’s strong export performance directly supports 180,000 of these high-tech, high- 
wage jobs. 

CMA and its member companies are committed to the multilateral liberalization 
of trade and investment underpinned by a framework of rules implemented through 
the World Trade Organization (WTO). We support the launch of a new hroad-based 
and flexible round of trade negotiations at the WTO Ministerial Meeting in Seattle 
and a negotiation process that allows for individual agreements to be implemented 
as they are completed. We believe strongly that early results in the round will not 
jeopardize the “single undertaking” objective of the round, which requires all WTO 
members to implement all negotiated agreements. 

Market Access and Accelerated Tariff Liberalization 

A significant achievement of the global chemical industry in the Uruguay Round 
was the Chemical Tariff Harmonization Agreement (CTHA), whereby 23 trading 
partners included the harmonization of tariffs on chemical products to rates between 
5.5 percent and 6.5 percent in their schedules of tariff concessions. Since the conclu- 
sion of the Uruguay Round, the number of countries joining the CTHA or applying 
CTHA rates has increased to 35. 

CMA’s highest priority is increased country participation in the CTHA. We have 
worked with the Office of the U.S. Trade Representative to include the objective of 
harmonizing chemical tariffs as one of the “early voluntary sectoral liberalization” 
(EVSL) initiatives in the Asia Pacific Economic Cooperation (APEC) forum. We con- 
tinued these efforts through the transfer of the EVSLs to the WTO as the “Acceler- 
ated Tariff Liberalization” (ATL) process. 

The ATL in chemicals is designed to build on the results of the Uruguay Round 
by bringing important chemical-trading countries into the CTHA. U.S. negotiators 
have aided the industry’s efforts by including chemical tariff harmonization in the 
market access requests of trading partners that are in the process of acceding to 
the WTO. For instance, Chinese Taipei has already incorporated chemical harmoni- 
zation in its schedule of concessions for implementation upon accession, and China 
agreed to implement the chemical and other ATLs as part of its April 8th package 
of market access commitments for WTO accession, provided that others in the WTO 
also agree to do so. And, Indonesia announced recently that it would also begin low- 
ering its tariffs on chemicals. 

ATL and the New WTO Round 

CMA and its member companies firmly support broad-based and balanced results 
in the new round of WTO negotiations, and we support the “single undertaking” 
mechanism as a means to achieve such results that also reflect the interests of all 
parties. The single undertaking mechanism ensures that all elements of the nego- 
tiated results (except where explicitly exempted and agreed) are subject to unified 
dispute settlement and that all WTO members (developed and developing alike) 
agree to obligate themselves to all elements of the negotiations, without derogation, 
even though individual WTO members may be subject to differing timetables for im- 
plementation. 

Our view is that both early results, such as the ATL, and a “single undertaking” 
can be fully accommodated within the upcoming round. It is essential that the tim- 
ing of achieving results during the negotiations not be confused with the objective 
of a single undertaking at the conclusion of the round. Use of a common crediting 
mechanism that keeps a “running total” of all liberalization, together with recogni- 
tion by all WTO members that they must participate in all agreements in the final 
package, removes procedural impediments to begin implementing negotiated results 
in specific sectors or issue areas as agreements are achieved. Thus, the timing for 
reaching agreement on specific elements is far less important than ensuring that 
the final negotiated result is balanced, reflects outcomes of interest to all parties, 
and is mutually binding on all WTO members. 

As an incentive for participation in early tariff liberalization, WTO members can 
agree to provide countries with credit for guaranteed, bound trade liberalization en- 
acted since the close of the Uruguay Round. The permanent binding of concessions 
can take place, as in the past, at the conclusion of the round, or a release from the 
provisional binding can be granted by the WTO should the round not reach a conclu- 
sion. 

Achieving early results in the multilateral negotiations adds to the credibility of 
the WTO process by showing that it is not necessary to wait seven or more years, 
as we did in the Uruguay Round, before tangible outcomes can be shown. Early re- 
sults will help to keep the negotiating process manageable while also maintaining 



146 


momentum toward further liberalization. We think it is far better to implement 
trade liberalization on a regular, ongoing basis than it is to force all issues and sec- 
tors to be held in reserve for one “big bang,” but agonizingly slow, result. 

International Chemical Industry Supports New WTO Round and Chemical Tariff 
Elimination 

The worldwide chemical industry is united in its endorsement of a new WTO 
round and the elimination of all chemical tariffs by all WTO members. In June, the 
International Council of Chemical Associations (iCCA) — a coalition of the chemical 
industry associations of the United States, the European Union, Japan, Canada, 
Mexico, Argentina, Brazil, New Zealand, and Australia — stated that the new round 
should build on sectoral and trade liberalization undertaken since the Uruguay 
Round and stressed that final results of all negotiations must be adopted in their 
entirety by all WTO members. Specifically, the group called for worldwide elimi- 
nation of chemical tariffs for all WTO members and proposed a phased approach 
based on the level of existing tariffs. Furthermore, the ICCA called for the elimi- 
nation of non-tariff measures, such as export licensing, quotas, dual pricing and 
trigger price mechanisms, and discriminatory standards. 

In addition, the ICCA called for the establishment of a global, balanced and bene- 
ficial investment regime for all members of the WTO, advocated WTO rules for 
trade facilitation, supported current WTO disciplines for anti-dumping, and sought 
full implementation of the existing TRIPs agreement on intellectual property. The 
ICCA also urged clarification of the relationship between multilateral environmental 
agreements and WTO rules. We are attaching an overview of the ICCA statement 
on the new round. 

Conclusion 

CMA looks forward to working with the Members of this Subcommittee as you 
develop negotiating objectives for the upcoming WTO Round. In particular, we urge 
you to consider approaches to renewing the President’s trade negotiating authority 
so that ATL tariff reduction commitments and other early results can begin while 
the round continues. 

A new WTO round that combines early results with a single undertaking offers 
new opportunities for tariff liberalization, market expansion, and the guarantee of 
internationally accepted rules of fair trade. Without U.S. support of the WTO, its 
agreements, and its ongoing negotiations, the U.S. chemical industry will lose the 
benefits of free and fair trade, including export markets, and the U.S. economy will 
lose the chemical industry’s significant contributions: export revenues, annual trade 
surpluses, and highly skilled jobs. 

International Council of Chemical Associations 
Chemical Industry Strongly Supports New Trade Round, Tariff Elimination 

Geneva, Switzerland, June 23 — Leading chemical trade associations today ex- 
pressed strong support for a new round of multilateral negotiations in the World 
Trade Organization (WTO), including the elimination of all chemical tariffs by all 
WTO members. 

The International Council of Chemical Associations (ICCA) meeting in Geneva, 
urged that all chemical tariffs without exception be eliminated by all WTO mem- 
bers. The group proposed a phased approach to tariff elimination, according to the 
level of existing tariffs. Furthermore, iCCA called for elimination of non-tariff meas- 
ures, such as import licensing, quotas, dual pricing and trigger price mechanisms, 
and discriminatory standards. 

ICCA said the new round should build on sectoral and regional trade liberaliza- 
tion undertaken since the end of the Uruguay Round, and stressed that final results 
of all negotiations must be adopted in their entirety by each WTO member. ICCA 
also expressed its strong support for the WTO as an institution, and welcomes the 
accession of new members to the WTO provided these countries adopt all the agree- 
ments required for entry to the organization. 

The ICCA hopes that the period leading up to the start of the new round will pro- 
vide an opportunity to broaden tariff harmonization for chemicals through expanded 
product and country coverage of the Chemical Tariff Harmonization Agreement, or 
through other mechanisms which achieve at least the same results. 

In addition, the ICCA called for the establishment of a global, balanced and bene- 
ficial investment regime for all members of the WTO. The group advocated WTO 
rules for trade facilitation, supported current WTO disciplines for anti-dumping, and 
sought full implementation of the existing TRIPs agreement on intellectual prop- 



147 


erty. ICCA urged clarification of the relationship between multilateral environ- 
mental agreements and WTO rules. 

World chemical industry production exceeds US$1.6 trillion annually and almost 
30% of this production is traded internationally. Within global trade in manufac- 
turing, world trade in chemicals is second only to automobiles, far outpacing com- 
puters and related technology in third place. The International Council of Chemical 
Associations (ICCA) represents almost 80% of the world’s chemical production. It is 
a coalition of the following chemical industry trade associations: 

Asociacion Nacional de la Industria Quimica (ANIQ) [Mexico] 

Canadian Chemical Producers’ Association (CCPA) 

Chemical Manufacturers Association (CMA) [USA] 

Conselho das Industrias Quimicas do Mercosul (CIQUIM) [Argentina and Brazil] 
European Chemical Industry Council (CEFIC) 

Japan Chemical Industry Association (JCIA) 

New Zealand Chemical Industry Council (NZCIC) 

Plastics and Chemicals Industry Association (PACIA) [Australia] 


Chairman Crane. Thank you, Ms. Ambrose. And the advantage 
of being there rather than up here is you are stuck up here. 

Let me put my first question to you, Mr. Weiller. I was im- 
pressed with the statistics here on small business. We had a Trade 
Subcommittee hearing back in my district a couple of years ago, 
and Illinois is the fifth largest export state in the country. We have 
some giants there in my district like Motorola and Ameritech, 
Sears, United Airlines, but next door to me are ones like John 
Deere and Caterpillar down south. I always knew that they are 
very aggressively involved in exports. What was revealing was that 
better than 90 percent of the exports from our State of Illinois 
came from companies employing 500 or fewer. And what is striking 
is this top graph here of the increase, companies that do not export 
in 1989 were almost half of them, 48 percent, and that has dropped 
in 1998 to 22 percent. And I am sure it is still going down. 

And the other thing is the revenues. I had no idea what a rich 
market that is out there, that 9 percent of those exports earned 9 
percent — 9 percent rather earned over 25 percent in profits and 11 
percent earned between 11 and 25 percent. So it is a good market 
out there. And getting that word out is one of the problems frankly 
I think we have in trade in this country. 

When I say getting the word out, I think we have not effectively 
got our chief executive officers to communicate to their employees 
that the company’s survival is dependent upon that world market 
out there, and that means their jobs, and getting them in turn to 
communicate that message to all of us, to our local district offices 
or send us postcards down here on these trade issues, whatever is 
involved. I was wondering if are there areas in the WTO negotia- 
tions that will be particularly important for small businesses such 
as your company? Have you got thoughts on that? 

Mr. Weiller. Well, thank you for the opportunity. What you 
were saying earlier about the percentage of business that is export, 
and it shows at 75 percent small- and medium-sized, I expect the 
number is actually larger. As an example, my company is an ex- 
porter, and we have about 70 employees. But we use, purchase 
services from other smaller companies sometimes, metal manufac- 
turing, sometimes smaller electronics, circuit board manufacturers 
and so on. And they in effect export but they don’t realize it. They 



148 


think they are just selling to a local company in the same town. 
They don’t realize that 100 percent of what they manufacturer gets 
assembled and shipped overseas as a export. So I suspect that 
some of these numbers by the time you really get through become 
much larger. 

If the question is what is it that can be done to help exporters, 
there are a number of things that are already being done. I recog- 
nized my testimony was focused really on the areas that are really 
impediments, the countries that are problem areas for everybody, 
China and so on which have very high tariffs and so on. The truth 
is that I really don’t feel that negative. I think a lot has happened. 
I think it is very positive in the last 10 years. And in effect we 
have — we are enjoying some of the benefits of fair trade already. 
Again, focusing on those that I did in my conversation here, that 
we need some help there because those are markets that are grow- 
ing, and if we don’t get into them, I don’t mean just the small com- 
panies, I mean the larger ones, we will lose, even after a trade 
agreement is reached. 

To give you a specific example, in some countries, for example, 
in India, American consulting engineers are not present. You have 
German consulting engineers. Well, once, if ever, India agrees to 
liberalize all the infrastructure, development will continue to be 
dictated by the German engineering companies. They will purchase 
German products and American companies will be out of that. This 
has happened in Vietnam from what I understand from other peo- 
ple. So some of the effects of this is going to be very long, much 
longer than after the trade barrier is officially opened. 

Chairman Crane. Thank you, Mr. Warshaw, and, Mr. Lambert, 
the U.S. Trade Representative has made proposals to make the dis- 
pute settlement process more transparent and streamlined, and in 
your view are these proposals, if enacted, satisfactorily, and what 
else should the U.S. propose in the way of changes to the dispute 
settlement process? 

Mr. Lambert. We strongly support any efforts to strengthen the 
dispute settlement mechanism. NCBA would also support consider- 
ation of the carousel approach to changing the retaliation list peri- 
odically to keep uncertainty in the system, to keep political pres- 
sure in the system within the European Union to bring resolution 
to this issue. 

Other areas that we have suggested are things perhaps like a 
bond or an escrow account to be set up when the initial ruling 
comes into effect so there is an incentive for early settlement rath- 
er than the premium on stall and delay, or possibly the amount of 
injury could be set at the time that the reasonable period is deter- 
mined with some type of a plus or minus in that injury amount de- 
pending on the length of time that the process is dragged out. 

But we wholeheartedly support any efforts to strengthen that 
settlement process. 

Mr. Warshaw. And we generally agree with Mr. Lambert, the 
position of USTR right now is a good starting point. But the thing 
that is important to us after the experience that we have been 
through in the dispute settlement process is that each of the steps 
can be relatively fast. You know reflecting back on a point that I 
made before, remember in the case of the initial decision against 



149 


the European regime, it had taken them 3 months to put in place 
the illegal regime but the WTO granted 15 months of, quote, “rea- 
sonable” period to conform their system with WTO laws. 

So as an example something that we would encourage of USTR 
is to have a more speedy process, a more thorough process, some- 
thing that more parallels the kind of activity that puts into place 
the illegality. We would like to see fixed timeframes that are rel- 
atively inflexible. We remember that we were supposed to see a 
panel report most recently about 60 days before the final panel re- 
port was issued. And every month counts in a situation like this. 

And finally that in the situation where there is noncompliance, 
that there be additional consideration given to punitive damages. 
That would, in addition to the actual damage sustained, cause the 
offending nation to act a little bit faster in bringing the situation 
to its rectification. 

Chairman Crane. The most vexing thing about the first 5 years 
of the WTO’s operation has been the European refusal to respect 
the dispute settlement findings against their restrictions on ba- 
nanas and beef, and you suggest a carousel approach to retaliation. 
Could you describe that in greater detail? 

Mr. Warshaw. Let me give a little bit more dimension as I do 
that to the reasons why we actually like the idea of the carousel 
retaliation. The plain fact is this: There has been a list of European 
products that there have been over $300 million of 100 percent du- 
ties in place for some time now. It doesn’t seem like Europe minds 
this very much. We think that Europe didn’t mind it because a list 
like this has to be very, very carefully selected. It has to be tar- 
geted against constituents who care, who will go to their govern- 
ments, their members states, and complain and say “we can’t live 
with this anymore.” 

If you look at the lists both in the beef case and the banana case, 
we haven’t seen any evidence that the constituents really care at 
this point. So there is not an enormous pressure being borne by the 
member states, hence the EU commission can take its time. 

We think that the idea of carousel is effective because it affords 
the possibility of going to alternatives as soon as you realize that 
the selected products are not having the desired impact so that ef- 
fective products can be targeted, the retaliation can be put in place 
so that we can get the retaliation over with as quickly as possible. 
That is the objective. Not to live with retaliation but to get it over. 
We see carousel as something that makes it move faster. 

Mr. Lambert. I think we would concur. Our objective has never 
been retaliation. That gains the beef industry nothing. It distorts 
trade, stops trade. Our objective is to bring enough pressure to 
bear within the community to bring about a change in the regula- 
tions and to gain access to that market. 

In our case, there was an initial list $900 million worth of prod- 
ucts published. Our final retaliation is $116.8 million. If all of those 
commodities and all of the countries were uncertain if their com- 
modities were next on the list, that would keep them in the game, 
keep their pressure in the system to bring about a change of policy. 

Chairman Crane. Thank you. 

Mr. Levin. 



150 


Mr. Levin. Thank you, Mr. Chairman. I am sorry, I was in the 
Rules Committee for part of your testimony and I missed it. But 
we will review it carefully. And the next panel, Mr. Chairman, has 
heen here a long time. So I will refrain from questioning, just to 
comment we should hear your urgings that the dispute settlement 
process he more effective and the WTO therefore he more effective 
and relevant. 

I only urge that when other sectors urge the same or when peo- 
ple want to bring in other related trade issues, you have the same 
open mind or better than that, encouragement. Any way, we wel- 
come your testimony. 

Thank you very much, Mr. Chairman. 

Chairman Crane. Thank you. 

Mr. Portman. 

Mr. Portman. Thank you, Mr. Chairman. And thanks for the 
testimony today. 

In response to the Chairman’s questions you have given me most 
of what I was going to look for in the question and answer period. 
So if I could delve a little deeper into the topic of why you think 
in this case, beef and bananas in this particular, that the Euro- 
peans have not been willing to comply with, in this case, very clear 
dictates from first GATT, we had two GATT decisions in the ba- 
nana issue, and the beef case there was a clear and unequivocal 
legal decision, then several WTO decisions. And I guess rotating in 
carousel seems to make sense to me but I would wonder if we could 
step back and think why do you all believe they are not complying 
and then maybe we would know better whether carousel would be 
effective. 

Mr. Lambert. 

Mr. Lambert. I think in the case of beef and in agriculture in 
general, Europe is heavily subsidized. They do not want the com- 
petition. We feel that we could be very competitive in the market 
from a price standpoint and a quality standpoint. We have always 
viewed this as much more protection for the domestic industry in 
the European Union than a consumer concern. 

We are willing to label our product and let the consumer make 
the choice. So from our viewpoint it is the fact that they are heav- 
ily subsidized and any technology or any competition to that sys- 
tem just increases the cost of their subsidy system. 

Mr. Portman. So as an economist you would look at this as this 
is just the cost of doing business. In other words, they are already 
so heavily subsidized why not subsidize it a little more, which is 
in effect absorbing the retaliation. 

Mr. Lambert. We have said we would cash out the retaliation. 

Mr. Portman. Do you think rotation would be effective then in 
dealing with the problem given the fact they are willing to absorb 
these losses? 

Mr. Lambert. We feel that it would increase the political pres- 
sure within the system. Whether that would be adequate given all 
the constraints and the political system that they have to deal 
within the European Union, I am not sure. But we would like to 
give it a try. 

Mr. Portman. The American Farm Bureau has been supportive. 
I spoke to the Farm Bureau president after his testimony because 



151 


I didn’t have a chance to ask him questions, hut he indicated that 
he thought carousel was a good idea. And his response was sort of 
one of frustration that, you know, how else are we going to he able 
to get at this without being able to rotate and find more politically 
sensitive industries and businesses. 

Mr. Warshaw. 

Mr. Warshaw. Well, first of all I concur with that point. Con- 
gressman, that the rotation is absolutely necessary. Until we target 
the right products it will not be effective. To get the retaliation 
over is the first thing that we want to do, as I mentioned. 

I think that you asked two questions. One is why the EU is not 
agreeing to a future implementation that is WTO compatible. I 
think the answer is that in the case of bananas at least we have 
a situation where it has been ruled on that this licensing system 
under the tariff rate quota that grants licenses illegally needs to 
be disbanded, that people who had the historical access to market 
under WTO rules must be given continued access under a licensing 
regime. So in fact why they don’t want to come up with a system 
that is WTO compatible is that they lose their illegally gotten li- 
censes and therefore the illegal profits that they carved out for Eu- 
ropean interests. 

Interestingly enough, the Europeans comment from time to time 
that the cocomplainants, the United States and the five Latin gov- 
ernments are not in agreement on a solution. In fact that is not the 
case, that if you interview each of the governments that were plain- 
tiffs in the case, you would find that they all agree that a tariff 
rate quota that is properly constructed will conform with WTO’s 
norms. 

The why are they not complying sooner aspect of the question is 
just simply that they are still making money and they don’t have 
an incentive to stop making that money. And until someone clamps 
down, they will continue to earn those illegally conceived profits. 

Mr. PORTMAN. When will they realize that? I guess my final 
question would be, and it is to both Mr. Lambert and Mr. 
Warshaw, do you think that the EU properly understands that re- 
taliation will not be lifted until the U.S. industry receives some re- 
lief? Is that message clear to the Europeans? And if not, what can 
this Congress do to make that message very clear? 

Mr. Lambert. From our viewpoint I think it is clear, although 
they seem to hold out some false hope that they will offer some 
type of a compensation package that will be acceptable and will en- 
tice us to removing retaliation. So I think as much to the degree 
that we can send a united message from the Hill as well as from 
the administration, that it is very important that the European 
Union comply with the rulings, if for no other reason than for the 
sake of the WTO as a dispute settlement mechanism, and that 
sooner or later they will win a case and they would not want to 
be treated the way that we have been treated in this instance. 

Mr. PoRTMAN. Mr. Warshaw. 

Mr. Warshaw. I have been told by senior members of the Euro- 
pean Commission that they understand that the retaliation will not 
be lifted and I will tell you that they don’t seem to mind. They 
have taken their time. It is a deliberate schedule. The rulings came 
out as you know in April, and we are still sitting with the fact that 



152 


the commission has said that come September 9 they will make a 
proposal and all of the proposals that they have made in the mean- 
time, that they put out to the trade, and to us for that matter are 
illegal under WTO law. 

Mr. PORTMAN. If there is anything we can do to make it clear 
that we in the U.S. Congress and the USTR and the industry are 
one with regard to this strong message that unless there is compli- 
ance there will not be backing down on retaliation, it would be 
helpful. So you need to let this Subcommittee know and this Chair- 
man know. 

Thank you, Mr. Chairman. 

Chairman Crane. Mr. Becerra. 

Mr. Becerra. I want to just thank the witnesses and thank them 
for being so understanding of the time. And I will withhold on any 
questions. Yield back. 

Chairman Crane. Mr. Watkins. 

Mr. Watkins. Thank you, Mr. Chairman. Thank the panel. You 
know, Mr. Portman and I, banana and beef guy, it seemed like this 
was a threshold on some decisions and not getting things done 
under the WTO. Because WTO overall has ruled about 29 times in 
our favor. So when you look at the overall situation, Mr. Portman, 
I don’t know why they selected bananas and beef, not really put 
some teeth in it — Mr. Warshaw, you are talking about — because 
they don’t seem like they mind. And same thing with beef They 
don’t seem like they mind about that. 

So, it is going to be an interesting situation to see what WTO 
does. And let me just say, their credibility is at stake. We got to 
have and need a WTO, but I can say in the beef case, and I know 
Mr. Portman will speak more detail and knowledgeable about ba- 
nanas, he and I have talked going back and forth lots of times 
about the bananas and about beef, but in the case of beef, it has 
been a disaster in my opinion. And I have talked to a lot of cattle- 
men. When you think 10 years ago they started banning beef, and 
the long delay. And then after that period of time, a lot of my cattle 
people felt like it was losing about a $500 million market. But they 
were also willing to come down and say well, hey, 250 million. And 
then we projected, say we, U.S. Trade Representative, projected 
$205 million dollar loss, and then by the time they got through the 
WTO settlement, out about $116 million. 

Rob, that is less than bananas. I didn’t know that. But, you 
know, but look at that, and you think, my gosh, we are not very 
strong in trying to get our point across. 

And I hope Mike Moore will insist on a stronger following of the 
WTO rules and where we are. But, you know, this becomes quite 
alarming. We know there is a group in the Congress, they don’t 
fast track, they don’t want any kind — the fear is out there. You 
couple that with what has happened to bananas and beef, and put- 
ting some things in jeopardy, I think we have got to see a stronger 
position along the way there. 

Both have mentioned about subsidies. I totally agree. You know, 
it is subsidy structure in the European Union I think we need to 
go after a great deal. Now, a lot of people do not know we do not 
receive subsidies in the cattle industry. It does in the crops and 
things like that, but we do not have that subsidy in cattle, but yet 



153 


you look around and you see the overall budget of ECU, 70 percent 
or so is utilized for agriculture, not only just to subsidize to produc- 
tion, but also in necessary taking losses in order to capture mar- 
kets around the world. Somewhere we got to address that fact. 

And also, that doesn’t count the subsidies from the individual 
countries within the ECU. So you look at that. And that is why I 
talk about fairness. We have got to get the teeth in that and I have 
a lot of high hopes and hope that we can do some things to rec- 
oncile that. But, right now, as one who has fought this battle and, 
like I say, it is not a fly by-night thing for me, and it is not a polit- 
ical thing. My roots go deep in agriculture, and the cattlemen are 
probably my closest friends in the State of Oklahoma. I know there 
is no — they are so independent. They stick it out through thick and 
thin, drought, everything else. And I just cannot sit idly by when 
they are really totally feeling the effects of it in a big way. 

So I just want to thank both of you for being here, all three of 
you for being here and presenting this case. I think it is so timely 
and important, and I guess I keep saying the credibility, it could 
be in jeopardy next spring with the resolution coming from Con- 
gress if things do not turn around. We need to make sure that we 
get out and try to see what we can get done. We got to have the 
fairness here. 

Mr. Chairman, I might just say one more thing. I have such 
strong feelings about trade and you and I have shared that. I was 
thinking a little earlier, back when I was a youngster in De Queen, 
Arkansas about 4 years of age I used to come to town with my 
grandpa. Grandpa Johnson in a wagon, we had a rick of wood in 
the back of the wagon, and he had a horse and a mule usually tied 
or a horse or mule or combination of them tied on the back of the 
wagon. It was always a big day, Mr. Portman, when we did that 
on Saturday because we always went to the square in De Queen, 
Arkansas. 

And I would sit there in under the shade trees with him as my 
grandpa would negotiate the trade of that mule and horse and sell- 
ing or trading of that rick of wood for something else. And I always 
wondered about grandpa, because at home he had, Mr. Chairman, 
a box, a bolo knife. Any of you know what a bolo knife is? A hole 
knife, that was the thing back then, but I was always so thankful 
when he got to the point of making that trade he would say, I will 
pitch in a bolo knife to boot to make it work. You may not have 
heard the word to boot in a long time. But I know that was going 
to sink that trade. And what it really meant was that grandpa was 
going to go by the drugstore and we were going to get root beer on 
our way back. Nary a nickel, all we could drink. 

I look back and I think we need some bolo knives. We need to 
get some teeth in flnalizing some of these agreements to make sure 
we can make it happen for the United States of America. Our fu- 
ture is at stake. Our children’s future is at stake. I want not only 
Oklahoma but I want the United States to be the leader in the 
world. 

Thank you, Mr. Chairman. 

Chairman Crane. Thank you, Mr. Watkins. And I want to thank 
our panel for their participation in this effort. And it will be ongo- 
ing. This is not the only day we are going to have hearings on this 



154 


subject but your input is extremely valuable to us, and we would 
appreciate even when you are not here present, in person, please 
keep the chain of communication going to us. We need all the input 
we can get. 

And with that, this panel is in recess, and our next panel I hope 
is here. Let me call up first in the next panel though, David Smith, 
director. Public Policy Department of the American Federation of 
Labor and Congress of Industrial Organizations. David was tied up 
at another hearing where he was testifying, so we will have him 
as our first witness in the next panel. And then Charles Lake, vice 
president, American Family Life Insurance Co., on behalf of the 
American Council of Life Insurance; Gilbert Sandler, senior part- 
ner, Sandler, Travis & Rosenberg, on behalf of the Washington 
International Assurance Co., Itasca, Illinois; Rhett Dawson, presi- 
dent, Information Technology Industry Council; and Sheldon R. 
Jones, director, Arizona Department of Agriculture in Phoenix. 

We will proceed first with you, David, and then the other wit- 
nesses in succession. 

STATEMENT OF DAVID SMITH, DIRECTOR, PUBLIC POLICY DE- 
PARTMENT, AMERICAN FEDERATION OF LABOR AND CON- 
GRESS OF INDUSTRIAL ORGANIZATIONS 

Mr. Smith. Mr. Chairman, Members of the Subcommittee, I 
apologize for not having gotten back here for the last panel. I 
thought everything would work perfectly, that I would testify at 
the Judiciary Committee and get back here. Of course I made a 
misjudgment and apologize. 

Chairman Crane. And in this town nothing works perfectly, 
David. 

Mr. Smith. Well, I appreciate your indulgence. Let me try to re- 
ciprocate by being brief. You have my written testimony and I 
would appreciate that it could be placed into the record. 

Chairman Crane. All oral testimony, if you can all try and keep 
it to about 5 minutes, all written testimony will be made a part of 
the permanent record. 

Mr. Smith. I will do that. On behalf of our 14 million members, 
we certainly appreciate the opportunity to testify today. The sub- 
ject that you are talking about is of enormous importance. It is of 
enormous importance not simply to working people here but to 
working people around the world. 

The tone I want to set really has two dimensions. I want to talk 
specifically about the negotiating agenda. But we need to pay at- 
tention to a second point that Mr. Watkins was making as I was 
coming in I think it is a fundamental point. This system is not 
working well enough for us to have any assurance that it will en- 
dure, and we can’t underscore that point too firmly. I think about 
the last 30 years, a period of enormous increase in global integra- 
tion, trade has increased several times in orders of magnitude as 
a share of our GDP and others, but these last 30 years have been 
marked by the slowest periods of growth internationally in the 
postwar era. They have been marked by increasingly violent and 
increasingly volatile financial crises, some of which we are still 
feeling the effects of. Income distribution has worsened, both inside 
of countries and among countries. This is hardly a track record 



155 


which suggests that the evidence is unequivocal that greater global 
integration, more trade, more open markets, more financial inte- 
gration is necessarily good for people. 

In the real world, in the world where people get up in the morn- 
ing and go to work for a living, where people make a commitment 
to an employer and expect to have that commitment honored, in 
the world where developing countries are struggling to find a place 
in the international system, but see their currencies come under at- 
tack, their standards of living destroyed overnight, tens of millions 
of Indonesians thrust back into poverty, at the stroke literally of 
an arbitrageur’s computer, we ought to be very cautious about 
whether or not the kind of support we need for an increasingly in- 
tegrated global system will endure. 

Part of what is missing, part of what is missing from this system 
is decent and fully cognizant respect for the other half of the eco- 
nomic equation, the half that is provided by people who work for 
a living. We provided a lot of protection for people who own intel- 
lectual property, we provided a lot of protection and intend to pro- 
vide more for people who trade financial instruments. We provided 
a lot of protection for people who own real property. But we failed 
to meet our obligation to people who work for a living. 

The WTO agenda needs to begin in Seattle by asking two ques- 
tions. The first question that it ought to ask is: What have we 
learned during the last 30 years, not simply in the 5 years since 
the WTO has been in existence, but what have we learned during 
the last 3 decades in which this grand project of global integration 
has proceeded so rapidly? How do we explain and understand and 
take measures that correct the fact that income distribution hasn’t 
improved, it has deteriorated; that financial stability hasn’t become 
the norm, in fact financial instability has become the norm. And 
how do we address the question facing many workers in this coun- 
try, Mr. English and others raised it this morning, of the trans- 
mission belt of trade, transmitting our failures internationally, our 
failures in the international financial system into domestic labor 
markets, into domestic product markets and resulting in great dis- 
ruption here in the steel industry, in the garment industry, and the 
electronics and auto parts industry. 

The WTO agenda ought to begin with saying let’s take a deep 
breath, let’s step back, let’s take a look, let’s try to understand 
what has happened. 

Second, the WTO ought in Seattle to build on a commitment it 
made at the last ministerial in Singapore regarding worker rights. 
The worker rights that I am talking about are what have come to 
be known as core worker rights. They are reflected in the ILO Dec- 
laration on Fundamental Principles and Rights at Work, adopted 
with the strong support of our government a year ago in Geneva. 
That establishes a set of not quantitative, not arithmetic rights, 
but a set of human rights. 

It argues that human beings ought to have the right to freedom 
of association, meaning that they ought to be able to join a trade 
union if they wish without interference either from an employer or 
a government; that they ought to have the right to collectively bar- 
gain; that we ought to outlaw child labor, that we ought to get 
kids, wherever they live, in school so that as they grow they can 



156 


become real contributing members of their country’s economy; that 
we ought not to use prison labor illegally producing goods at prices 
that obviously distort labor markets because the men and women 
who are incarcerated that are producing goods for the commercial 
marketplace aren’t compensated; that these rights ought to be hon- 
ored in our trading system because the absence of these rights is 
itself a distortion. 

We think about distortions as if they were only in the form of 
monetary distortions, subsidies on the one hand or some inappro- 
priate set of nontarifif barriers to the movement of goods in the 
economy. In fact, the denial of these basic human rights is a distor- 
tion and a distortion which creates severe consequences both for 
the people whose rights have been denied and those who are forced 
to compete against goods produced in countries where the compara- 
tive advantage is the increased ability to degrade labor or to de- 
spoil the environment. 

We ought to take another step in Seattle and we ought to take 
the step, and you discussed it a bit with Ambassador Esserman 
this morning, of making concrete the obligation for candidate mem- 
bers, those seeking accession to the WTO, making concrete what 
we said in Singapore in general, which is that all countries accept 
these standards and commit themselves to honoring them. 

I want to just briefly say the market access questions that you 
spent some time on this morning are things that we support. It is 
an agenda that we think ought to be pursued. But I want to em- 
phasize the other things I have talked about, and, last, there is an 
enormous need in the dispute settlement mechanism, in the pro- 
ceedings as the WTO considers both the built-in agenda and new 
items on the negotiating agenda, there is an enormous need for 
greater transparency and access for working people, for citizens’ 
groups of all kinds. 

So that what — much too often in reality as well as in character- 
ization, what is described as a closed club of international elites be- 
comes an organization which people can understand, can get at, 
and can influence in the ways that mean so much to their lives. 
Thank you very much. 

Chairman Crane. Thank you. 

[The prepared statement follows:] 

Statement of David Smith, Direetor, Publie Poliey Department, Ameriean 
Federation of Labor and Congress of Industrial Organizations 

Mr. Chairman, members of the Subcommittee, thank you for this opportunity to 
present the views of the AFL-CIO on this important topic. I will summarize my com- 
ments here and submit my written testimony for the record. 

As the 20th century draws to a close, the global economy is still reeling from the 
turmoil unleashed by a series of serious financial crises. A quarter of the world 
economy remains mired in recession, and sluggish growth in much of the rest of the 
world calls into question prospects for rapid global recovery and improving living 
standards for the majority of the world’s workers. While increased global integration 
has brought growth and dynamism to some sectors and to some corporations, its 
downside has become more apparent and more troubling. 

Long-term trends toward growing global inequality continue, both between and 
within countries. In sub-Saharan Africa and in many other of the poorest countries, 
per capita incomes are lower today than they were in 1970. The gap between per 
capita incomes in countries with the richest fifth of the world’s people to those with 
the poorest fifth widened from 30-to-l in 1960, to 60-to-l in 1990 and to 74-to-l 
in 1995. Meanwhile, the richest three people in the world have assets greater than 
the combined incomes of the 600 million people living in the 48 poorest countries. 



157 


Most American workers have not benefitted from global integration either. Real 
wages have stagnated or declined for the majority of American workers, while the 
wealthy few have reaped disproportionate gains. 

The economic and political power of transnational corporations has become in- 
creasingly concentrated, both through mergers and acquisitions and, in some indus- 
tries, through rapid growth. Dramatically unequal access — between men and 
women, among English and non-English speakers and among countries — to tech- 
nology, education, and Internet connections will exacerbate these trends. 

In tbe United States, fundamentally misguided trade policies have resulted in bal- 
looning trade deficits, the loss of hundreds of thousands of high-paying manufac- 
turing jobs and a system of international rules that has undermined domestic meas- 
ures designed to protect human rights and the environment. Trade agreements have 
opened our markets while leaving in place other countries’ barriers; they have em- 
powered multinational corporate giants while leaving workers and communities to 
fend for themselves in an increasingly bitter global competition for scarce jobs and 
investment. 

Chronic and growing U.S. trade deficits have led to a massive international debt 
that is not sustainable in the long run. The underlying problems must be addressed, 
or these trade imbalances will bring the current economic boom to an abrupt halt. 

If we do not fundamentally change U.S. policies and the policies of the inter- 
national institutions in which the U.S. government plays such an important role, 
we will continue to lose good jobs, our trade deficit will continue to soar, inequality 
will continue to grow, corporate power will become more concentrated and the 
world’s poorest nations will fall further behind. The American people will — and 
should — reject a policy of global engagement that comes with these costs. There is 
an alternative. 

America’s unions are committed to a new internationalism focused on building 
international solidarity around a progressive, pro-worker, pro-environment, pro-com- 
munity international economic policy. 

Global Turning Point 

The global community stands at an important turning point — key decisions will 
be made in the near future, both in the global policy arena and by national govern- 
ments. In November, the world’s trade ministers will consider whether to launch an 
ambitious new round of negotiations and what such negotiations should address. 
The international financial institutions are under pressure to reevaluate the condi- 
tions they impose on developing countries in exchange for loans and financial assist- 
ance, in the wake of the Asian financial crises. The U.S. political system is stale- 
mated with respect to new trade negotiating authority, unable to build consensus 
around traditional trade bills. 

We should use this moment to pause and take stock of globalization so we can 
begin to repair the damage that has been done by misguided and careless policies. 
After several decades of tearing down trade barriers and increasing the mobility and 
flexibility of direct investment as well as speculative capital, we need to take an 
honest and careful look at the results. What has been the impact of current trade 
and investment liberalization policies on development, income distribution, financial 
stability and American workers? Have we struck the right balance between the need 
for global rules and the scope of domestic regulation on public health, the environ- 
ment and human rights? 

Current Rules Have Failed 

We believe that the current framework of global rules has failed miserably on 
many crucial counts. The international financial system has promoted policies that 
left many developing countries vulnerable and unprepared in the face of currency 
volatility and unpredictable swings in speculative capital flows. The result was 
thousands of bankruptcies and suicides, and tens of millions of people losing their 
livelihood and falling into desperate poverty. The international financial institutions 
pressured crisis countries to export their way out of their problems — exacerbating 
deindustrialization and a rising trade deficit here in the United States. 

Trade and investment rules have focused on guaranteeing the mobility of goods, 
services and capital across borders without giving adequate attention to the social 
impact of liberalization. In doing so, they have strengthened the power of corpora- 
tions bargaining with their workers, as well as with national and state govern- 
ments. 

But these trade and investment policies have done nothing to discipline illegal 
and anti-social behavior by corporations and governments competing in a fiercely 
competitive global economy. As a result, American workers have found themselves 
increasingly in head-to-head competition with workers in other countries who lack 



158 


basic human rights, and legitimate national regulations protecting the environment, 
consumer standards and workplace health and safety have been challenged as dis- 
guised restraints on trade. 

Development policy has been inadequate, inefficient and misguided. If the global 
economy does not generate more equitable outcomes in the developing world, then 
the entire global system will become increasingly unstable and unsustainable. We 
must use trade and investment agreements to reward those governments that re- 
spect workers’ rights, protect the environment, and allow democracy to flourish, not 
those that create the most hospitable climate for foreign investment, regardless of 
social concerns. 

WTO Priorities 

When the world’s trade ministers gather in Seattle later this year, the U.S. gov- 
ernment should insist that the WTO take concrete steps to achieve the following 
goals: 

• Review the impact of trade liberalization on income distribution, economic de- 
velopment and financial instability before launching major new negotiations. 

• Incorporate enforceable rules on core labor standards (including the freedom of 
association, the right to bargain collectively and prohibitions on child labor, forced 
labor and discrimination in employment). 

• Establish accession criteria requiring that new WTO members are in compli- 
ance with core workers’ rights. 

• Overhaul existing rules to strengthen national safeguard protections in the case 
of import surges and ensure that trade rules do not override legitimate domestic 
regulations. It is essential that WTO rules not infringe on the ability of national 
or state governments to use their purchasing power to protect human and workers’ 
rights. 

• Ensure that WTO rules do not create pressure on governments to privatize pub- 
lic services. 

• Carry out institutional reforms, enhancing transparency, accountability and ac- 
cess, so that citizens can understand the basis for WTO decisions, as well as provide 
meaningful input to this process. 

• Provide more technical and legal support to developing countries so their par- 
ticipation in negotiations is not hampered by lack of resources or technical expertise. 

In addition, the AFL-CIO believes that new negotiations on investment and com- 
petition policy are headed in the wrong direction — toward shoring up the rights of 
investors at the expense of other members of civil society and U.S. laws. 

Coordinating the Work of the International Organizations 

The AFL-CIO supports the International Labor Organization’s (ILO) 1998 Dec- 
laration on Fundamental Principles and Rights at Work and urges the ILO to move 
forward speedily with a strong and energetic follow-up mechanism. Now that the 
ILO and the international community have succeeded in building consensus around 
the universality and importance of the core labor standards, it is crucial that these 
core standards be incorporated into the work of the other international organiza- 
tions, including the WTO, the International Monetary Fund (IMF), and the World 
Bank 

The IMF, the World Bank and the regional banks must fundamentally rethink the 
conditionality they impose on developing countries. Rather than forcing austerity, 
privatization, deregulation, export-led growth, trade and investment liberalization 
and weakening of labor laws, the international financial institutions must empha- 
size domestic-led growth, democratic institutions and the observance of core labor 
standards. 

The international financial institutions and the governments of the industrialized 
countries must take urgent steps to grant deep debt relief to the least developed 
countries that are in compliance with core labor standards so these countries can 
meet the basic human needs of their populations and lay the foundation for future 
growth. 

The Economic Imperative 

The current regime of international trade and investment rules has failed on eco- 
nomic as well as moral terms. Aggregate global growth is slowing, not accelerating. 
Global inequality is growing. And many of the nations heralded in the recent past 
as stars of the global economy have found that repressing political dissent, stifling 
an independent labor movement and concentrating economic and political power in 
the hands of the corrupt few do not provide a basis for long-term growth and sta- 
bility. 



159 


The AFL-CIO is facing the challenges of the global economy in three ways: by 
building international solidarity, working to change the rules of the global economy 
and fighting on the home front to build strong, effective unions and ensure that 
workers have a voice in the national political debate. 

Thank you for your time and attention. I look forward to answering any questions 
you may have. 


Chairman Crane. Mr. Lake. 

STATEMENT OF CHARLES LAKE, VICE PRESIDENT AND COUN- 
SEL, AFLAC JAPAN, ON BEHALF OF AMERICAN COUNCIL OF 
LIFE INSURANCE, AMERICAN INSURANCE ASSOCIATION, 
HEALTH INSURANCE ASSOCIATION OF AMERICA, INTER- 
NATIONAL INSURANCE COUNCIL, AND THE REINSURANCE 
ASSSOCIATION OF AMERICA 

Mr. Lake. Mr. Chairman, I am Charles Lake, vice president and 
counsel of AFLAC Japan. AFLAC is the largest foreign financial 
services company in Japan in terms of profits, and the second most 
profitable foreign company of any industry in Japan. AFLAC now 
insures almost 25 percent of Japan’s overall population. 

My testimony is presented on behalf of the American Council of 
Life Insurance, the American Insurance Association, the Health In- 
surance Association of America, the Reinsurance Association of 
America, and the International Insurance Council where I serve on 
the board of directors. Collectively, these associations represent the 
major U.S. insurance and reinsurance companies with inter- 
national operations. 

As a former USTR negotiator involved in the completion of the 
General Agreement on Trade and Services, I am very honored to 
appear in front of this distinguished Subcommittee to present the 
insurance industry’s views regarding the negotiating objectives for 
the WTO Seattle Ministerial. 

U.S. insurance providers are among the most competitive in the 
world. Our cutting-edge products, services, and technologies allow 
us to offer customers the highest quality products in the world at 
competitive prices when the playin^eld is even and a fair competi- 
tion is permitted. Today I wish to address how our industry be- 
lieves the WTO 2000 round of negotiations can enhance our ability 
to compete overseas while encouraging sound and consistent regu- 
lation that protects policyholders. 

In the upcoming WTO services negotiations, the insurance indus- 
try believes that all WTO countries should commit to procom- 
petitive regulatory principles — sound insurance regulation that al- 
lows free and fair competition. 

GATS recognizes the right of its signatory jurisdictions to regu- 
late their domestic service industries. Regulations should be justi- 
fied by an objective and clearly defined need, not by whim or do- 
mestic political circumstances. Unfair and unequal regulatory re- 
quirements and restrictions often deny foreign firms the oppor- 
tunity to compete on an equal basis with local firms. In addition, 
lack of transparency can provide the domestic industry with a dis- 
tinct and unfair competitive advantage. A detailed explanation of 



160 


all of our insurance regulatory principles is contained in my full 
written statement. 

With my remaining time I would like to highlight several key 
points that we feel are particularly timely and appropriate with our 
priority emerging markets. 

Solvency and prudential focus: Regulation should focus on ensur- 
ing that institutions meet reasonable solvency and prudential re- 
quirements as the primary means of protecting consumers. In most 
cases governments should allow the markets to determine the most 
effective products and pricing of those products in a competitive 
regulatory environment that encourages innovation and product di- 
versity. 

A transparent legal, administrative and regulatory environment: 
Standards, requirements, and codes of practice need to be promul- 
gated with consultation, full documentation and accessibility to all 
market participants. Regulators should be impartial and an inde- 
pendent government entity. 

Income security: The U.S. insurance industry supports the devel- 
opment of a WTO mechanism that encourages global pension re- 
form based on free market principles with sound regulation and tax 
treatment that encourages citizens to offset the forecasted large 
gaps in public expenditures. 

Access to international reinsurance markets: All insurers, domes- 
tic and foreign, should have access to the international reinsurance 
market with cross-border transactions authorized and monopolistic 
mandatory cessation requirements prohibited. 

Taxation stability: The agreement should require the scheduling 
of all future taxation of insurance products. 

Improving definitions: USTR should determine the extent to 
which all United States insurance industry export product lines are 
currently covered by existing definitions. 

Dispute settlement: The U.S. should work to ensure that the 
WTO dispute settlement process provides a meaningful mechanism 
to challenge practices that are inconsistent with all current and fu- 
ture commitments. 

In conclusion, while these principles are ambitious, they are in- 
tended to build on the Financial Services Agreement so that the 
WTO 2000 negotiating objectives will not only improve traditional 
market access commitments, but improve regulatory standards to 
foster financially sound and competitive insurance markets world- 
wide. 

Our European insurance industry colleagues support these policy 
objectives. We are currently working with our Latin American and 
Asian counterparts to gain their support as well. Also we have 
begun consultations with U.S. State regulators and their inter- 
national counterparts to seek their support for our mutual objec- 
tives. We believe we have a historic opportunity to improve our 
ability to provide our products and services to the people of the 
world, and we look forward to working with the Congress as well 
as international trade negotiators to achieving these objectives. 

I thank you, Mr. Chairman and Members of the Subcommittee, 
for this opportunity to outline our negotiating objectives for the 
WTO Seattle Ministerial, and I would be pleased to answer any 
questions you may have. 



161 


Chairman Crane. Thank you, Mr. Lake. 

[The prepared statement follows:] 

Statement of Charles Lake, Vice President and Counsel, AFLAC Japan, on 
behalf of American Council of Life Insurance, American Insurance Asso- 
ciation, Health Insurance Association of America, International Insur- 
ance Council, and the Reinsurance Asssociation of America 

Mr. Chairman, I am Charles Lake, Vice President and Counsel of AFLAC Japan. 
AFLAC is the largest foreign financial services company in Japan in terms of prof- 
its, and the second most profitable foreign company of any industry in Japan. My 
testimony is presented on behalf of the American Council of Life Insurance, the 
American Insurance Association, the Health Insurance Association of America, the 
Reinsurance Association of America, and the International Insurance Council, where 
I serve on the Board of Directors. Collectively, these associations represent the 
major U.S. insurance and reinsurance companies with international operations. 

As a former USTR negotiator involved in the completion of the General Agree- 
ment on Trade in Services (GATS), I am very honored to appear in front of this dis- 
tinguished committee to present the insurance industry’s views regarding the nego- 
tiating objectives for the WTO Seattle Ministerial. 

U.S. insurance providers are among the most competitive in the world. Our cut- 
ting edge products, services and technologies allow us to offer customers the highest 
quality products in the world at competitive prices when the pla3dng field is even 
and fair competition is permitted. AFLAC has built upon product knowledge and un- 
derwriting expertise learned in the U.S. and created in 1974 an entirely new cat- 
egory of products in Japan. AFLAC now insures almost 25% of Japan’s overall popu- 
lation. 

AFLAC Incorporated is a Fortune 500® company which insures more than 40 mil- 
lion people worldwide. AFLAC was ranked as the top insurance company in Forbes 
Global Business & Finance magazine’s “A-plus” list of the world’s best companies. 
AFLAC’s experience is often used in MBA curriculums as an example of what U.S. 
companies can do if they take their unique and innovative products overseas. 

When allowed to fairly compete in foreign markets, our industry provides substan- 
tial benefits to foreign consumers and economies, to domestic policyholders through 
increased financial resources and risk diversification, to stockholders, and the U.S. 
services trade surplus through return on investments. Since the U.S. market’s abil- 
ity to absorb our wide range of insurance products is limited, an increasing number 
of life pension and annuity, property and casualty, reinsurance and surety compa- 
nies have significantly stren^hened their commitment to conducting business over- 
seas or have for the first time established an international presence to begin offer- 
ing their products outside of the U.S. This trend will only intensify, in part because 
of the success of the upcoming WTO round. In that regard, we deeply appreciate 
the Committee’s leadership in establishing tax policy that supports U.S. trade pol- 
icy. The extension of the exemption from Subpart F for active financing income is 
crucial in allowing U.S. financial companies, in general, and insurance companies, 
specifically, to compete in the global marketplace. 

Today I wish to address how our industry believes the WTO 2000 Round of Nego- 
tiations can enhance our ability to compete overseas while encouraging sound and 
consistent regulation that protects policyholders, and increases trust in the private 
insurance industry. In the upcoming WTO services negotiations, the insurance in- 
dustry believes that all WTO countries should commit to pro-competitive regulatory 
principles — sound insurance regulation that allows fair and free competition. 

The December 13th 1997 WTO Financial Services Agreement, created the first 
multilateral, legally enforceable, and permanent agreement covering insurance 
trade and investment. The agreement is designed to reduce and/or eliminate govern- 
mental actions that prevent financial services, including insurance, from being free- 
ly provided across national borders or that discriminate against foreign-owned fi- 
nancial services firms. When it came into force on March 1, 1999, the agreement 
created a floor of specific insurance market access, national treatment, and trans- 
parency commitments, below which countries will not be able to act without facing 
binding adjudication and sanctions. However much more liberalization needs to 
occur. 

The WTO’s GATS has a built-in requirement for progressive liberalization nego- 
tiations, the first of which must begin no later than January 1, 2000. In contrast 
to the 1997 negotiations on basic telecommunications and financial services, these 
negotiations will cover a large spectrum of sectors. Since this is the beginning of 
a new round, the negotiating format and structure of the agreement are now open 
to redesign. My industry colleague. Dean O’Hare, Chairman of the Coalition of Serv- 



162 


ices Industries, will address the overall services negotiations, so I will limit my com- 
ments to our insurance-specific objectives and consensus building activities to pro- 
mote sound, pro-competitive insurance regulatory principles. 

GATS recognizes the right of its signatory jurisdictions to regulate their domestic 
service industries. Many services are regulated by governments to ensure the funda- 
mental goals of consumer protection and guarantee the supply of services to con- 
sumers. These fundamentals are not disputed by the U.S. private sector, although 
there are different ways of ensuring such fundamental goals through regulation. 
Some of these ways will be more restrictive than others. Regulations should be justi- 
fied by an objective and clearly defined need, not by whim or domestic political cir- 
cumstances. 

An essential element of true financial services liberalization should be the global 
development of pro-competitive regulatory principles. Open, well-regulated service 
markets are the necessary foundation for a country’s ability to compete in global 
markets for goods, agriculture and services. Market access alone does not guarantee 
liberalization. 

We believe that the negotiations should continue to focus primarily on market ac- 
cess and national treatment needs. However, they should also focus on another sig- 
nificant barrier to trade that transcends both market access and national treatment 
objectives — burdensome regulatory systems that can serve as major impediments to 
free trade. 

While traditional market access and national treatment liberalization commit- 
ments are a significant step toward market liberalization, these principles alone do 
not assure fair competition. Unfair and unequal regulatory requirements and re- 
strictions often deny foreign firms the opportunity to compete on an equal basis with 
local firms. In addition, a lack of transparency, combined with uneven enforcement 
of regulations, can provide the domestic industry with a distinct and unfair competi- 
tive advantage. 

Regulation of financial services markets must protect consumers; however, some 
regulatory systems may actually deprive consumers of better products, lower costs, 
and improved service. For example, restrictions on the types of products that can 
be offered by a company or unreasonably lengthy product approval procedures pre- 
vent firms from introducing new products or developing products that are tailored 
to the needs of local customers. Moreover, restrictions on the pricing of products 
limit the ability of companies that are run more efficiently to offer consumers better 
prices. Other types of regulations that prevent foreign firms from competing fairly 
with local businesses include: exchange controls, deposit and lending rate ceilings, 
investment restrictions, qualitative lending controls, privileged access to credit, and 
restrictions on business powers. 

Lack of regulatory transparency is another barrier to fair and open competition 
in financial services. In some countries, regulations are not published in a way that 
is easily accessible to all businesses. In other countries, the process for developing 
regulations is opaque and there is no opportunity for local private sector input. Even 
if the regulations are available, the inconsistency of enforcement (or even non-en- 
forcement) against local firms can handicap foreign competitors. Financial services 
firms that dutifully comply with domestic regulations simply cannot compete fairly 
or successfully with local companies that can lower costs by ignoring those same 
regulations. Political interference in the development and implementation of regula- 
tions adds yet another impediment to fair competition as local leaders intervene on 
behalf of local businesses, often resulting in disparate regulatory treatment for a 
foreign firm. 

It is a difficult task to draw a clear line between market access issues, national 
treatment concerns and domestic regulation principles. Countries may disguise a 
market access issue, such as restricting new products under domestic regulation ar- 
guments, by characterizing it as consumer protection. It is the role of the private 
sector to assist government negotiators in assessing market situations, identif3dng 
protectionism and discriminatory regulations, and persuading countries to commit 
to regulation that allows fair and free competition. 

While considering areas of possible liberalization under the pro-competitive 
theme, we are conscious that as this is the beginning of a new round of negotiation 
it is now possible to address areas that have traditionally not been included in the 
WTO. Now is the appropriate time to consider building upon the Financial Services 
Agreement to create a second generation of trade agreements that will not only 
allow U.S. insurance providers to compete more effectively in international markets 
but which will continue the relevancy of the WTO in the future. 



163 


Solvency and Prudential Focus: 

Regulations should focus on insuring that institutions meet reasonable solvency 
and prudential requirements as the primary means of protecting consumers. In 
most cases, governments should allow the market to determine the most effective 
products and the pricing of those products in a competitive regulatory environment 
that encourages innovation and product diversity. 

Mechanisms to accelerate the licensing of new insurance products should be en- 
couraged. Expedited licensing procedures should be available for those products, 
which already fit into the existing regulatory framework and are available in the 
market. No limits should be placed upon the number or frequency of new product 
introductions by a company. 

Appropriate rules and procedures that do not discriminate against foreign insur- 
ers and are consistently applied should be established and made public governing 
the identification and handling (including closure) of financially troubled institu- 
tions. 

A Transparent Legal, Administrative, and Regulatory Environment: 

Standards, requirements, and codes of practice need to be promulgated with con- 
sultation, full documentation and accessibility by all market participants. Foreign 
insurers applying for authorization to do business should be provided a written 
statement, setting out fully and precisely the documents and information the appli- 
cant insurer must supply for the purpose of obtaining authorization. This statement 
should aim to simplify and accelerate, as appropriate, the explicit procedures to be 
followed. 

The regulatory body should be an independent government entity. Decisions re- 
garding the procedures used by the regulators/supervisors should be impartial with 
respect to all participants and not supplant a competitive marketplace. The govern- 
ment should ensure that the financial services regulatory bodies have sufficient re- 
sources and trained personnel to effectively enforce the solvency, prudential and 
consumer protection laws and regulations. 

Income Security: 

Supporting the “three pillar” pension system currently recommended by the World 
Bank and the Organisation for Economic Co-operation and Development, the U.S. 
industry supports the development of a WTO mechanism which encourages global 
pension reform based on free market principles, with sound regulation, and tax 
treatment that encourages citizens to offset the forecasted large gaps in public ex- 
penditures through either group or individual forms of savings and benefits. 

Access to International Reinsurance Markets: 

International reinsurance market access is necessary in all product lines to better 
spread loss exposures, absorb catastrophes and marshal sufficient capacity to insure 
adequate market resources to avoid any crisis. Therefore, all insurers, domestic and 
foreign, should have access to the international reinsurance market, with cross-bor- 
der transactions authorised and monopolistic mandatory cession requirements pro- 
hibited. Regulations should provide locally established direct insurers with the op- 
tion to take credit for cross border reinsurance secured by either: letter of credit, 
reasonable trust fund deposit, or funds withheld. 

Taxation Stability: 

The agreement should require the scheduling of all future teixation of life insur- 
ance pension and annuities, property and casualty insurance, reinsurance, long-term 
care, disability income and retirement security products, prior to entry into force via 
a biannual notification process. 

Improving Definitions: 

USTR should determine and confirm with the WTO Secretariat the extent to 
which all U.S. insurance industry export product lines are currently covered by ex- 
isting definitions. Industry suggested additions that are not currently explicitly cov- 
ered include: life reinsurance, pension products and services such as plan adminis- 
tration, annuities, surety bonds and financial guarantees, disability income and long 
term care insurance, health care and medical insurance, as well as ancillary services 
such as pension fund management and related endeavours. 

Notwithstanding setting higher standards for liberalization, without a funda- 
mental strengthening of the dispute resolution mechanism other changes will be 
largely pointless. The U.S. should work to ensure that the WTO dispute settlement 



164 


process provides an effective and meaningful mechanism to challenge practices that 
are inconsistent with all current and future commitments. 

In conclusion, while these principles are ambitious, they are intended to build 
upon the 1997 WTO Financial Services Agreement so that the WTO 2000 Negotia- 
tion Objectives will not only improve traditional market access commitments, but 
improve regulatory standards to foster financially sound and competitive insurance 
markets. 

We have the support of our European insurance industry colleagues in promoting 
these policy objectives. We are currently working with our Latin American and 
Asian counterparts to gain their support as well. We have also begun consultations 
with U.S. State regulators and their counterparts in global markets to seek their 
support for mutual objectives 

We believe we have a historic opportunity to improve our ability to provide our 
products and services to the people of the world, and we look forward to working 
with the Congress as well as international trade negotiators to achieving these ob- 
jectives. 


Chairman Crane. Mr. Sandler. 

STATEMENT OF GILBERT LEE SANDLER, SENIOR PARTNER, 
SANDLER TRAVIS & ROSENBERG, P.A., ON BEHALF OF THE 
WASHINGTON INTERNATIONAL INSURANCE COMPANY, 
ITASCA, ILLINOIS, ACCOMPANIED BY MICHAEL DAVENPORT, 
VICE PRESIDENT, WASHINGTON INTERNATIONAL INSUR- 
ANCE COMPANY 

Mr. Sandler. Mr. Chairman, thank you very much. We appre- 
ciate the opportunity to be here. My name is Lee Sandler. I am an 
attorney with Sandler, Travis & Rosenberg, and I am here today 
representing Washington International Insurance Co., who is also 
represented today by Michael Davenport, their vice president, who 
is with me to participate in this hearing. 

Washington International is one of the largest suppliers of cus- 
toms surety bonds in the United States. Approximately one-third 
of the bonds currently on file with the Customs Service are Wash- 
ington International-generated bonds. They have a wealth of expe- 
rience and knowledge about how the bonding system facilitates 
trade, and that experience is the basis of this testimony today. 

There are two chief concerns that we have about the ministerial 
meetings: facilitating U.S. exports and expanding markets or U.S. 
surety companies. We have a simple request, and that is that a 
great priority be given to encouraging our trading partners to es- 
teblish surety-based control and release systems. There are two 
benefits from this that are particularly significant. The first, of 
course, is that across the board, all types of goods exported from 
the United States can be facilitated by the use of a surety bond 
system. The second is that the surety bond industry in the United 
States can benefit by the expansion of that industry into a global 
environment, allowing them to compete in larger markets. 

You heard Chubb testify earlier today about the maturity of the 
American insurance market, the flatness of growth. Well, the glob- 
al growth in this industry would be extremely important for the 
growth of U.S. industries. 

What does the bond system do? It completes the sale. Every ex- 
port from the United States is a sale, but the sale is not con- 
summated when the merchandise leaves our borders. It is only con- 



165 


summated when it gets into the hands of the customer in the for- 
eign destination at the time he wants it and in the condition he 
wants it. That doesn’t happen under current systems, where cus- 
toms regimes and all the other government agencies who take a 
look at trade in a foreign country hold up the goods while they 
make all of their final decisions. Plants that could be producing in 
those countries and employing people in those countries lie idle 
while materials do not get there or while machinery doesn’t get put 
in place on productionlines, and goods do not get to customers, so 
sales are not consummated. 

The surety bond system permits trade to take place in an effi- 
cient manner. It is a critical cornerstone of all the transparency 
and procedural issues that others have testified to today, and we 
would encourage that it be highlighted at these hearings. 

When you do not delay goods at the border, it lowers the possi- 
bilities of theft, of pilferage, of damage, of contraband. It lowers the 
possibility of corruption at borders, which has been such a major 
impediment to so many of our companies. 

This is not simply a benefit for the U.S. export community, it is 
also a benefit for the foreign countries seeking to compete globally 
as well. Increasingly, companies trying to make an investment de- 
cision whether to place a manufacturing operation abroad or re- 
gional distribution center abroad take a look at whether they have 
the capacity of moving cargo, moving goods, or moving machinery 
or equipment quickly into that commerce in predictable timeframes 
and under predictable conditions. The surety bond system is a cor- 
nerstone of that type of an investment regime, and our trading 
partners should embrace it just as the exporters would embrace it 
to encourage to their businesses. 

We know that there have been obstacles in discussing this type 
of system internationally, whether it is in the FTAA negotiations 
or before the WCO or the WTO. That reluctance in foreign coun- 
tries to adopt a bonding system often has sprung from a traditional 
fear of importer fraud or from a traditional fear that customs serv- 
ice officials would not like to see integrity brought into their sys- 
tems. 

So we have proposed five different approaches to make certain 
that this is something that we can bring home to the ministers in 
Seattle. First is to take a hard look at creating prototypes; defined 
test programs that can be established within our friendly trading 
countries that can serve as a model for others to achieve a level 
of comfort in the system and for them to copy. 

We have suggested that there be some imagination used in ap- 
proaching this and not just use traditional bonding systems, includ- 
ing a bonding system which is not just a bond posted by the im- 
porter, but a bond posted by the exporter. This would work particu- 
larly well in related-party transactions, which comprise so much of 
our trade today. The related-party exporter bond gives the import- 
ing country the knowledge that it is recourse not just against the 
importer, but against the surety company and against the export- 
ing parent company as well. 

Second, to make certain that we in our negotiations have dem- 
onstrated the importance of this type of a system to the investment 
programs in the foreign countries. Third, capitalize on the business 



166 


facilitation process, the civil society process that is a companion to 
the ministerial meetings. Having the business community come for- 
ward and make it clear how important this is to their decision- 
making process can be critical to getting the ministers to embrace 
it. 

We know that the ICC has embraced this process, the U.S. Coun- 
cil for International Business and the U.S. Chamber of Commerce 
has, and we are certain that the business organizations outside the 
United States would as well. 

Fourth, tie the system to trade benefit promotion. The World 
Customs Organization now has the capacity to measure the length 
of time it takes to release cargo into the commerce of a foreign 
country. Take that measurement standard and establish it as you 
would a tariff level, and use that as a basis for negotiation and pro- 
viding of benefits — trade benefits to our trading partners when 
they can demonstrate that they have put in place a process that 
lowers the length of time it takes to clear goods into the commerce. 
When clearance time drops, they would be eligible for additional 
benefits. 

and fifth is insist upon strict adherence to the customs 
avaluation code. Article 13 of that code states very specifically that 
there should be a bonding system in place to assure that the deci- 
sionmaking by the government agency takes place after the goods 
have been released into the commerce under bond and not hold up 
the goods at the border while they make prolonged decisions im- 
peding commerce for no good reason. There is adequate security 
through an adequate bonding system. 

We think that these types of imaginative approaches can be very 
convincing and can move this issue forward to the benefit of our 
exporters, to the benefit of our surety industry, and, in fact, to the 
benefit of the foreign countries seeking investment opportunities. 

We thank you for the opportunity to testify today. 

Mr. PORTMAN [presiding]. Thank you, Mr. Sandler. 

[The prepared statement follows:] 

Statement of Gilbert Lee Sandler, Senior Partner, Sandler, Travis and 
Rosenburg, P.A., on behalf of Washington International Insuranee Com- 
pany 

We wish to thank the Subcommittee for holding this hearing and providing an op- 
portunity for the business community to provide recommendations on the proposals 
and positions to be advanced by the United States at the Third Ministerial Con- 
ference. The World Trade Organization has taken on an increasingly important role 
in the world economy. Its rules and rulings directly affect the ability of United 
States companies to compete. Your efforts to obtain a wide range of suggestions 
from the business community to better craft United States objectives at the next 
Ministerial meeting is most welcome and appreciated. 

My testimony today is offered on behalf of Washington International Insurance 
Company (“WIIC”). WIIC is a United States insurance company with its head- 
quarters office located outside Chicago in Itasca, Illinois. It is one of the many com- 
panies certified by the United States Treasury Department to secure government 
obligations; it is one of the smaller group of companies which writes substantial 
number of bonds securing United States Customs (and other agency) import obliga- 
tions. In fact, WIIC is surety on approximately one-third of the bonds currently on 
file with the United States Customs Service. 

My testimony today also reflects important lessons learned in my law practice. I 
am a lawyer with thirty years experience in international trade regulation. My ca- 
reer began in the Department of Justice, defending decisions by the United States 
Customs Service affecting importations into the United States. After leaving govern- 
ment, my practice naturally focused upon representing United States companies 



167 


seeking to cope with United States import laws. Over the last decade, those United 
States companies have increasingly come to us to assist with their exports which 
have been ensnarled or damaged by unforeseeable or unacceptable customs proce- 
dures administered by our trading partners throughout the world. Many of these 
problems are ones which can now be understood, anticipated and remedied — be- 
cause so many of our trading partners have adopted the GATT Harmonized Tariff 
and Customs Valuation Codes. 

This testimony will focus upon another area in which United States companies 
can better compete by reform of a world-wide customs procedure: adoption of a sur- 
ety-based system for control and early release of cargo, permitting release of goods 
to importers before completion of decision-making by the importing government 
agencies. 


Summary of Statement 

In our experience, one of the greatest regulatory needs faced by United States 
companies seeking to compete in foreign markets is the need for a reliable system 
assuring the quick and timely release of goods into the commerce of the country of 
importation. The “quick release” of merchandise from the custody of all government 
agencies in the country of importation would allow United States exporters to meet 
customer demands and/or manufacturing and inventory schedules. It would also 
minimize the opportunities for damage, theft and corruption at the point of entry. 

Our trading partners should have a strong interest in the establishment of a cus- 
toms bond system: the timely release of goods is a major factor when multinational 
companies make investment decisions on where to establish manufacturing and dis- 
tribution centers outside the United States. A system that accommodates the needs 
of just-in-time inventories for manufacturing and distribution is essential to the suc- 
cess of any investment promotion program. 

The United States service industries also have a strong interest in establishment 
of customs bonding systems throughout the world. United States insurance and sur- 
ety companies have the experience and capacity to serve this new marketplace. 
International negotiations in the services sector have created the possibility for our 
companies to compete; encouragement of new surety bond marketplaces will open 
new opportunities for United States companies in a field in which we are already 
more experienced than our foreign competitors. 

The United States has a long and successful history of relying upon a surety bond 
system to satisfy law enforcement interests of the government and the trade facilita- 
tion interests of importers. We urge that the strongest possible efforts should be 
taken to encourage the adoption of surety-based control and release system by all 
of our trading partners. 

In addition, we urge that the GATT process reach out more systematically to the 
business community by establishing a consultation and negotiation mechanism simi- 
lar to the business facilitation measures adopted in the Free Trade Agreement of 
the Americas (“FTAA”) negotiations. Long-term negotiations can be supplemented 
and enhanced with short-term objectives and accomplishments, focused upon identi- 
fying and targeting specific new approaches to facilitate trade. 

The Problem 

Prolonged detentions or interminable release times for imported cargo are peren- 
nial problems for United States exports to foreign nations. Foreign customs regimes 
typically insist upon holding goods until they are satisfied that all requirements are 
met, including the full range of customs valuation and tariff classification decisions, 
quantity and labeling verifications and health and safety standards. This inherent 
delay imperils the ability of United States exporters to meet contract or production 
deadlines, raises the costs of our products and undermines our basic competitive po- 
sition in foreign markets. 

In addition, prolonged periods of detention and inspection create an environment 
in which corruption can flourish. Delays in release, and the holding of goods in a 
detention facility or at the point of entry, render the goods vulnerable to theft and 
pilferage. The delays also subject the owners of the goods to solicitation of “gratu- 
ities” by government officials or third parties. 

This is also a problem which challenges the competitiveness of our trading part- 
ners. A surety-based quick release system, permitting release of cargo prior to com- 
pletion of the administrative process, will enhance the ability of the importing coun- 
try to collect revenues, improve its enforcement efforts and create the efficiencies 
needed to compete in a world economy which increasingly invests in countries which 
can support just-in-time manufacturing and distribution systems 



168 


One Solution: Traditional Import Bonds 

The United States and many of our major trading partners permit the posting of 
a bond written by a government-approved surety company in order to permit the 
immediate release of imported goods securing or guaranteeing all of the government 
obligations involved in the importations while the government agencies make their 
final determinations. This approach allows the importing country to make its final 
decision over a reasonable period of time, while permitting businesses to efficiently 
move goods into the foreign commerce. This system of customs surety bonds is ap- 
proved by the Kyoto Convention and the Customs Valuation Code (Article XIII), but 
has gone largely unused. 

The role of the traditional surety is to guarantee the importer’s obligations to pay 
duties, fees and taxes on the importation, and to comply with all other government 
obligations. The traditional bond would secure liquidated damages — but not fines 
and penalties for misconduct — assessed for failure to comply with a broad range of 
government obligations enforced at the border (i.e., all of the health and safety 
measures). The government would continue to look to the importer — at least ini- 
tially — to fulfill its obligations under the law, but upon default by the importer, 
would have recourse against the surety to collect its revenues and enforce its laws. 

The traditional import bond is made available by the insurance or surety industry 
in the country of importation. Any country with a large pool of importers and an 
insurance or finance industry with access to information necessary to underwrite 
the risk of writing bonds for a particular company is capable of instituting a bond 
system very quickly and successfully. 

In addition, a sound surety system relies upon a national legal and judicial sys- 
tem which permits seeking reimbursement from defaulting or bankrupt bond prin- 
cipals (i.e., importers), and administrative and judicial procedures which allow the 
surety to evaluate, accept or contest demands made upon it by customs authorities. 

United States insurance and surety companies have long worked successfully in 
providing security for United States Customs obligations, and are likely to be able 
to participate in an expanded international marketplace for customs surety bonds. 
The efforts by the Administration to open the world’s insurance markets to foreign 
investors provides an important platform for United States participation in an ex- 
panded use of the surety system to facilitate international trade. 

Another Solution: Non-Traditional Bond 

It is recognized that a traditional import bond may not be a viable alternative in 
many of the developing counties due to the lack of the necessary industry and legal 
structures described in the preceding section of this statement. Accordingly, we urge 
consideration of new, non-traditional approaches to bonding systems which could es- 
tablish “quick release” systems to complement or substitute for a traditional bond- 
ing system. One such Non-traditional system is an exporter bond. 

Under an exporter bond system, the importing country would agree to accept the 
bond written by a surety approved by that country and posted with it by the export- 
ing company. The bond could also be signed by the importer. The bond could secure 
all (or designated) obligations to the importing country. It could provide recourse by 
the importing country against the exporter — with benefit of the surety obligations — 
while continuing its recourse against the importer. It would not alter the commer- 
cial terms of the transaction (e.g. title would pass wherever designated by the par- 
ties). 

The Non-traditional concept has many advantages. It serves the traditional roles 
of import bonds: immediate release of goods while customs authorities take addi- 
tional time to make proper decisions; enforcement of laws against the importer with 
reliable security available from the bonding company to both satisfy the government 
obligation and to have private industry continue to pursue the importer-of-record. 

It has several added advantages over those available in a traditional bond pro- 
gram: it provides a unique assurance to the importing country that it has recourse 
against the exporter as well as the importer, and a better means to appreciate and 
evaluate the transaction value reported for the transaction. In related party trans- 
actions, validation of the transaction value is particularly significant — involvement 
of the exporter in the security arrangement could improve the possibility that re- 
lated party transaction values will be more readily accepted by new signatories to 
the Customs Valuation Code. Further, the non-traditional exporter bond would fos- 
ter a favorable environment for foreign investment to build industrial capacity with- 
in the importing country by establishing a more reliable and predictable customs 
procedure for multinational companies. 

An exporting bond system could be established in developing countries much fast- 
er than a traditional bonding system. Since the bond principal is in the country of 



169 


exportation, the surety need not rely upon the country of importation for the pool 
of companies needing bonds, access to underwriting information, and legal and judi- 
cial systems in place to permit seeking reimbursement from the principal. The im- 
porting country would be required only to establish procedures to certify companies 
eligible to write bonds, and to provide reasonable administrative and judicial proce- 
dures for evaluating and contesting demands made on the bonds by the customs au- 
thorities. 


Summary and Conclusion 

One of the most significant regulatory impediments to United States competitive- 
ness in worldwide product markets is the inability to have our exports released 
timely by foreign government agencies. We urge that this problem be attacked at 
the Ministerial Meetings by encouraging the adoption of surety-based quick release 
procedures. We believe that such procedures are also important to the United States 
insurance and surety industries, as they seek to compete in worldwide markets, and 
to our trading partners as well, as a necessary part of their efforts to compete for 
foreign investment and a larger role in global manufacturing and distribution. 


Mr. PoRTMAN. Mr. Dawson. 

STATEMENT OF RHETT DAWSON, PRESIDENT, INFORMATION 
TECHNOLOGY INDUSTRY COUNCIL 

Mr. Dawson. Mr. Chairman, I am Rhett Dawson, president of 
the Information Technology Industry Council, and I want to leave 
with you three thoughts today if I could. Information technology is 
one of the key sectors of the economy driving growth and increas- 
ing jobs. Second, we are delighted that we have been the recipient, 
the beneficiary of the past efforts to improve trade and eliminate 
barriers in information technology products and services. And we 
are happy that we have contributed to that success ourselves in our 
leadership. 

The third point I want to leave with you today is that in Seattle 
we hope that the ministers will kick off something we call the 
Trade Framework for the Information Economy. My organization, 
the Information Technology Industry Council, represents the lead- 
ing providers of information technology products and services, and 
we have been very deeply involved in the past trade agenda, and 
we have a big stake in this one as well. Our members had world- 
wide revenues of $440 billion in 1998, and we employ 1.2 million 
people in the United States. 

A recent administration report put it this way: Over the past 4 
years, information technologies industry output has contributed 
more than one-third to the growth of real output of the overall 
economy. 

The ubiquity of the Internet is altering the way our economy op- 
erates. Growth in electronic commerce is astounding everyone, and 
it is not a sector of the economy that is reserved just for the so- 
called Internet companies. There is now recognition that to be com- 
petitive in any business, companies must understand how to effec- 
tively utilize information technology and the Internet. 

Let me give you a perspective on what is called the connected 
economy. The 1999 estimate is that 200 million PCs, in homes and 
businesses, are going to be connected worldwide. The number is 
going to double in 2 years. And, we are on our way to 1 billion con- 
nected personal computers worldwide. 



170 


There is recognition that not only is this good for business, but 
it is also good for consumers. And it is also good for expressing 
where we are and what we stand for as a country. The information 
revolution makes freedom more attainable because it makes it 
more difficult for governments to control, censor and centralize the 
free flow of information. 

American consumers and businesses have benefited greatly from 
past successes on opening up global trade and information tech- 
nology goods. Let me give you two conspicuous examples. First, of 
great significance to our country and our industry was the negotia- 
tion of 1996 Information Technology Agreement. The ITA currently 
has 44 signatory countries and represents well over 90 percent of 
the world market for IT products, and we are hopeful that we can 
add China to that list when they become a member of the WTO. 
Full implementation of the ITA next year will bring tariffs on a 
broad range of information technology products to zero. Already the 
information technology agreement has stimulated over $500 billion 
in trade. 

We also benefited from the 1998 WTO Ministerial agreement not 
to impose customs duties on electronic transmissions, the so-called 
duty-free cyberspace declaration. This gives us more breathing 
space in other countries to see the benefits of IT and better under- 
stand how electronic commerce is changing international business 
opportunities for our citizens. 

The Seattle Ministerial offers an opportunity to pull all of these 
elements together, recognize the role of electronic commerce in pro- 
moting and facilitating international trade, and articulate what I 
called before, the Trade Framework for the Information Economy. 

We propose that the WTO ministers when they meet in Seattle 
endorse this Trade Framework for the Information Economy and 
take on four commitments: First, to agree to continue the May 20 , 
1998, moratorium on customs duties on electronic commerce — that 
is duty-free cyberspace — and do that for the duration of the next 
round, and that applies to both the transmissions themselves and 
to their content. 

Second, we want the ministers to reaffirm that current WTO ob- 
ligations, rules, disciplines and commitments, namely the GATT, 
GATS and TRIPS agreement, are technology-neutral and apply to 
e-commerce. We do not need to invent new trade rules when exist- 
ing rules may serve. 

Third, we want ministers to commit to refrain from taking meas- 
ures that would inhibit the growth of e-commerce and access to in- 
formation technology. Forbearance is a very tough thing for govern- 
ments to do, but that is what is needed and what we are seeking. 
But even when domestic measures in a country are taken, we think 
even when that happens, the measures should be such that they 
are the least trade-distortive as possible and subject to WTO prin- 
ciples. 

Fourth, we want ministers to begin work on the trade frame- 
work, but here we ought to be explicit. We are not proposing that 
the WTO embark on negotiations on issues that are not yet ripe 
for international agreement. There is a lot of work to be done to 
broaden the understanding of the connected economy and how it is 
changing business, and they should also examine how current 



171 


trade rules apply and to assess whether new regimes are necessary 
to provide a strong underpinning for the global information econ- 
omy. 

A political commitment to forbear from taking measures that 
would inhibit access to or use of the Internet would provide the 
measure of confidence that all businesses seek from every part of 
the globe. 

In the last several months, ITI has participated in seminars in 
Geneva to acquaint WTO representatives there from over 60 coun- 
tries with the benefits of information technology and electronic 
commerce. We strongly encourage that the WTO work on e-com- 
merce continue, and we are delighted to have an opportunity to 
have testified today. Thank you. 

Mr. PORTMAN. Thank you, Mr. Dawson. 

[The prepared statement follows:] 

Statement of Rhett Dawson, President, Information Technology Industry 

Council 

Thank you Mr. Chairman for inviting me to testify today on the upcoming World 
Trade Organization Ministerial and the agenda for the New Round. 

In my brief comments today, I want to leave you with three thoughts: 

• Information technology (“IT”) is driving US economic growth, increasing produc- 
tivity, creating better paying jobs and expanding opportunities for all Americans. A 
substantial part of the growth is due to strong exports of information technology 
products and services. 

• The IT industry and consumers and businesses around the world have benefited 
from past successes to eliminate barriers to trade in IT products and services. 

• In order to further extend the benefits of IT to developing countries in the 21st 
Century, we are putting forward an initiative we call the “Trade Framework for the 
Information Economy”. 

First, though, a few words about the association I represent. The Information 
Technology Industry Council represents the leading U.S. providers of information 
technology products and services (a membership list is attached). We advocate ex- 
panding economic growth through innovation and support free-market policies. Our 
members had worldwide revenue of more than $440 billion in 1998 and employ 
more than 1.2 million people in the United States. 

I. Information Technology’s Contribution to US Economic Growth 

As Eederal Reserve Chairman Alan Greenspan recently told the Joint Economic 
Committee, “Something special has happened to the American economy i.” 

• Information technology jobs are high pa 3 dng jobs, averaging $53,000 per year, 
compared to an average of $30,000 per year for all private sector jobs.^ 

• Technology has played a key role in restraining inflation. Price changes in IT- 
producing industries, compared with the rest of the economy, have resulted in a low- 
ering of domestic inflation by one full percentage point per year during both 1996 
and 1997.3 

• Investment in computers and information technologies in the 1990s by every 
sector of our economy — from carmakers to farmers — has cut production costs and 
boosted output. The result has been to hold prices down and increase American com- 
petitiveness internationally. 

• IT contribution to real domestic economic growth continues to increase. The 
Commerce Department’s recent report. The Emerging Digital Economy II, put it this 
way: “Over the past four years, IT industries’ output has contributed more than one- 
third to the growth of real output for the overall economy.” 


1 Testimony of Federal Reserve Chairman Alan Greenspan before the Joint Economic Com- 
mittee, June 14, 1999. 

3 The Emerging Digital Economy 11, US Department of Commerce, June 1999, page 39 
3 Ibid., page 18 
■•Ibid., page 19 



172 


• Again, quoting Chairman Greenspan, “The newest innovations, which we label 
information technologies, have begun to alter the manner in which we do business 
and create value, often in ways not readily foreseeable even five years ago.” ® 

The increasing ubiquity of the internet is promising to significantly alter the way 
our economy operates. Growth in electronic commerce is astounding — and this is not 
a specialized sector of the economy reserved for the so-called “internet companies.” 
There is now recognition that to be competitive in any business, companies must 
understand how to effectively utilize information technology and the Internet. 

Some industry analysts estimate that e-commerce will generate more than $3 tril- 
lion in sales by 2003. This is due in large part to the United State’s world leader- 
ship in the information technology sector as well as policies that promote minimal 
regulation and free trade. 

II. IT Has Benefited from Past Successes 

American consumers and business have benefited greatly from past successes to 
open global trade in information technology goods, establish ground rules for com- 
petitive telecommunications services, intellectual property protection, and the mora- 
torium on customs duties on electronic transmissions. ITI and its member compa- 
nies have been in the vanguard of these and other trade policies and intend to con- 
tinue our leadership role. 

Let me give you two conspicuous examples: 

The IT A 

Of great significance to our industry was negotiation of the 1996 Information 
Technology Agreement. The ITA currently has 44 signatory countries, representing 
well over 90% of the world market for IT products. We are hopeful that we can add 
China to the list of signatories when China becomes a member of the WTO. 

Full implementation of the ITA next year among the signatories will bring tariffs 
on a broad range of information technology products to zero. Already, the ITA has 
stimulated over $500 billion in trade, and Facilitated access to state-of-the-art infor- 
mation technology in both developed and developing countries. 

In addition to eliminating duties on IT products, the ITA has a built-in review 
mechanism that ensures it will be expanded over time to include other countries 
and products. This is a critical point for our industry. In just the past three years 
we have seen the convergence of computing, telecommunications and consumer elec- 
tronics technologies, and the creation of a range of fascinating new products and ap- 
plications. The ITA must be updated to include these new products. In addition, 
there is opportunity to further open trade at the level of parts, components and 
other inputs. 

We strongly advocate completion of the ITA II negotiations to expand product cov- 
erage and establishment of an aggressive work program to address trade issues aris- 
ing from convergence and non-tariff barriers, particularly technical standards. In 
that respect we have been especially active in advancing an agenda to eliminate du- 
plicative testing and certification requirements for IT products in foreign markets. 

Trade and Electronic Commerce. 

Our industry benefited from the 1998 WTO Ministerial agreement not to impose 
customs duties on electronic transmissions, the so-called “Duty-free Cyberspace Dec- 
laration.” This action and the ensuing year-long work program have given countries 
“breathing space” to examine the benefits of IT, better understand how electronic 
commerce is changing international trade and business opportunities for their citi- 
zens, and think through appropriate next steps. 

Some have said that e-commerce is simply another form of trade. This is true, but 
that description does not go far enough. Information technology makes e-commerce 
possible, transforms old ways of doing business (including entire industries), and 
creates new economic opportunities. People all over the world are “connected” with 
one another like never before. 

Too often we have a tendency to think about and address each WTO agreement 
or work program in isolation from all of the others — the Information Technology 
Agreement separate from the Basic Telecom Agreement; the Agreement on Trade- 
Related Aspects of Intellectual Property separate from the Agreement on Technical 
Barriers to Trade; and so on. As we bore down even deeper into the details of each 
individual subject, we lose sight of the interrelationships between and among the 
agreements. For a cross-cutting industry like information technology, this approach 


® Federal Reserve Chairman Alan Greenspan, May 6, 1999. 



173 


often forces us to emphasize certain elements over others. We risk losing focus on 
the broader goal. 

The Seattle Ministerial offers an opportunity to pull all of these elements to- 
gether, recognize the role of electronic commerce in promoting and facilitating inter- 
national trade, and articulate what we call the “Trade Framework for the Informa- 
tion Economy.” 


III. Objectives for the Seattle Ministerial 

We propose that the WTO Ministers, when they meet in Seattle, set forth the 
“Trade Framework for the Information Economy” through four related commit- 
ments. Taken together, these commitments provide a transparent, predictable, and 
technology-neutral international trade environment that will foster global economic 
growth and development. 

These commitments are political only, and by that I mean that they would not 
be legally binding or enforceable. They would reflect the “best efforts” of trade min- 
isters to keep electronic commerce “barrier-free.” 

The first commitment is to agree to continue the May 20, 1998 Moratorium on 
Customs Duties on Electronic Commerce (for at least the duration of the New 
Round) and clarify that the exemption from tariffs applies both to the transmissions 
themselves and to their contents. 

Second, we want the Ministers to reaffirm that current WTO obligations, rules, 
disciplines and commitments (namely the GATT, GATS and TRIPS agreements) are 
technology-neutral and apply to e-commerce. We don’t need to invent new trade 
rules when using the existing rules may serve us better. 

Third, we want Ministers to commit to refrain from taking measures that could 
inhibit the growth of e-commerce and access to IT. Forbearance is a tough thing for 
governments to do, but that is what is needed and what we are seeking. However, 
should domestic measures be deemed necessary, even then the measures should be 
the “least trade distortive” as possible and subject to WTO principles (in particular, 
national treatment, non-discrimination, transparency, notification, review and con- 
sultation). 

Fourth, we want Ministers to initiate the Trade Framework for the Information 
Economy. Let me be explicit: we are not proposing that the WTO embark on nego- 
tiations on issues that are not yet ripe for international agreement. But, there is 
much work to be done to broaden understanding of how electronic commerce is 
changing global business, to examine how current trade rules apply, and to assess 
whether new rules are necessary to provide a strong underpinning for the global in- 
formation economy. The Seattle Ministerial offers an opportunity to initiate work on 
these critical issues. 

Let me underscore the importance we attach to a political commitment by min- 
isters to refrain from taking measures that restrict or inhibit electronic commerce. 
In order for all countries — both developed and developing — to reap the benefits of 
the information age, electronic commerce must remain as unimcumbered as possible 
from regulation and trade barriers. 

One of the main reasons electronic commerce has grown so quickly is because the 
internet has not been singled out for regulation. We propose Ministers commit 
themselves to resisting imposing burdensome regulations that will inhibit the 
growth of electronic commerce and instead, when measures must be taken, make 
them the least restrictive. 

A political commitment to “forebear” from taking measures that would inhibit ac- 
cess to or use of the Internet would provide the measure of certainty that businesses 
all around the world seek. And it would set into motion a dialogue among countries 
on the trade-distortive effects of potential measures — again, to the benefit of all 
WTO members. 

In the last several months, ITI and its member companies have conducted four 
seminars in Geneva to acquaint WTO representatives from over 60 countries with 
the benefits of information technology and electronic commerce. We strongly encour- 
age that the WTO’s work on e-commerce include substantive dialogue with industry. 

ITI stands ready to provide whatever assistance we can to ensure that the Seattle 
Ministerial and the ensuing negotiations result in a transparent, predictable and 
technology-neutral trade environment that will foster global economic growth and 
development. This would be a “win” for all and another reason to celebrate the bene- 
fits of information technology as we reach the start of the 21st Century. 

Thank you Mr. Chairman and I would be happy to answer any questions you 
might have. 



174 


Mr. PoRTMAN. Director Jones. 

STATEMENT OF SHELDON R. JONES, DIRECTOR, ARIZONA 
DEPARTMENT OF AGRICULTURE, PHOENIX, ARIZONA 

Mr. Jones. I am Sheldon Jones, director of the State Department 
of Agriculture for the State of Arizona in Phoenix. I am grateful to 
you and to the Subcommittee as a whole for giving me this oppor- 
tunity to speak on behalf of the State of Arizona on why it is cru- 
cial that the United States continue its ambitious trade agenda. 

Now more than ever it is imperative that the United States nego- 
tiate and enforce agreements worldwide which will create open and 
fair markets for U.S. products and services. This process of engage- 
ment will ensure our continued growth and standard of living into 
the 21st century. 

Allow me to begin by stating that Arizona fully supports legisla- 
tion providing the administration fast track trade authority. An ex- 
port-dependent industry, U.S. agriculture must be able to compete 
in foreign markets on a level playingfield. Without authority to ne- 
gotiate trade agreements, the administration cannot fully assure 
agriculture a place at the table in the international marketplace. 

Comprehensive negotiating authority is needed to address high 
tariffs, trade-distorting subsidies and other restrictive trade prac- 
tices. Fast track is also needed to pursue promising new opportuni- 
ties for market-opening trade agreements in Latin America, Asia 
and elsewhere. Passing fast track legislation will provide the ad- 
ministration with the necessary authority to assure the U.S. com- 
petitiveness in foreign markets does not continue to suffer. 

The United States has 4 percent of the world’s population and 
controls 22 percent of the world’s wealth. In the next 15 years, the 
developing countries in both Latin America and Asia are expected 
to grow three times as fast as the United States, Europe and 
Japan. With this information, it is clear that if 4 percent of the 
world’s population is to maintain 22 percent of the world’s wealth 
and create more wealth, we must open up the world’s fastest-grow- 
ing markets to U.S. products and services. 

The World Trade Organization today is the result of 50 years of 
American leadership and the creation of an international trading 
system. This system is designed with the primary goal of tearing 
down foreign trade barriers and promoting a singular rule of law 
in the arena of international trade. The World Trade Organization 
has worked to cut tariffs and quotas on farm and ranch products 
worldwide. However, many will agree there is much more to be ac- 
complished. I applaud both Ambassadors Barshefsky and Esserman 
for their commitment to address the concerns of the U.S. agri- 
culture industry in its recent circulated objectives for the agri- 
culture negotiations. 

While I fully support the four objectives to which the USTR has 
committed its attention, I believe the trade issues facing agri- 
culture in America extend deeper and deserve further specific at- 
tention. Today, I will touch on five issues which the State of Ari- 
zona views as critical to the success of any international trade sys- 
tem for agricultural products. 



175 


First, the State of Arizona supports the unilateral reduction of 
all foreign subsidies and tariffs on all agricultural products. Ample 
time has passed since WTO initiated agricultural trade reform, and 
it shouldn’t be unrealistic to expect the WTO member countries to 
have significantly reduced agricultural dependence on government 
support. Arizona recognizes the prerogative of sovereign nations to 
support farmers and ranchers if they so choose; however, it is im- 
portant that the WTO address the distortions these measures of 
support have caused to global production and trade. 

The 1996 farm bill clearly established the expectation of this gov- 
ernment that the United States agricultural industries would learn 
to compete internationally with minimal subsidization in the field 
and in the marketplace. We, as a whole, recognized the need to re- 
direct this sector of our economy to a self-sufficient, market-driven 
industry. The days of heavy governmental assistance for farming 
and ranching in this country were over. This, as we all know, is 
just not the case throughout the rest of the world. 

Without the elimination of unreasonable government field and 
market subsidization of WTO member countries’ agricultural indus- 
tries, U.S. farmers and ranchers cannot compete. 

Equally important is the issue of tariffs placed on agricultural 
products. The State of Arizona supports the reciprocal reduction of 
tariffs in WTO member countries on U.S. agriculture products. 

Second, the State of Arizona supports the implementation of 
rules for the trade of perishable and seasonal commodities. In fiscal 
year 1997, Arizona agricultural operations raising everything from 
artichokes to cotton lint, corn to honey, to tomatoes and water- 
melon generated nearly $2.2 billion in cash receipts from agri- 
culture marketings. While Arizona produces a variety of crops, a 
great variety of commodities produced in my State are seasonal 
and perishable in nature. Presently no specific rules exist to deal 
with the trade of perishable and seasonal commodities. When 
asked if specific rules for perishable commodities were needed at 
the Agriculture Forum immediately preceding the Free Trade Area 
of the Americas Business Forum in Belo Horizonte, the head of the 
Uruguay round agriculture negotiating team agreed that the pro- 
mulgation of such rules would be both helpful and advisable for all 
WTO member countries. 

Third, the State of Arizona supports the implementation of a 
workable and meaningful dispute resolution mechanism. Presently, 
Arizona believes the avenues for dispute resolution within the 
WTO inadequately suit the needs of perishable and seasonal com- 
modities. By their very nature, these commodities require timely 
solutions to ensure that perishable shipments are not lost to bu- 
reaucratic or political mechanisms. 

In the new round of negotiations, Arizona recommends that the 
U.S. solicit clarification of the dispute settlement process with a 
strong enforcement mechanism, limited settlement appeals, and 
strict compliance deadlines. 

Fourth, the State of Arizona supports the Uruguay round agree- 
ment on sanitary and phytosanitary measures and does not sup- 
port opening them for discussion. Despite the adoption of the Uru- 
guay round agreement on SPS issues, a number of WTO member 
countries continue to impose sanitary and phytosanitary measures 



176 


which are questionable at best in nature and sincerely lack a basis 
in sound science. These SPS measures create tremendous barriers 
to market access abroad for U.S. agricultural products. 

While some WTO member countries wish to reopen he SPS 
agreement for amendment, the State of Arizona believes that the 
WTO’s strict enforcement and thorough implementation of the cur- 
rent SPS agreement is absolutely essential to the success of any 
international trade system. 

Fifth, the State of Arizona supports transparency and science in 
the genetically modified organism approval process and market ac- 
cess for GMOs. I support the administration’s recently circulated 
position to the WTO entitled “Measures Affecting Trade in Agricul- 
tural Biotechnology Products.” as a representative of a $6.3 billion 
industry in Arizona, I am tremendously concerned that the Euro- 
pean Union’s approval system for biotechnology products is a proc- 
ess rooted in hysteria and lacking transparency. 

The State of Arizona continues to advocate for global market ac- 
cess for genetically modified organisms in all WTO countries. Fur- 
ther, we believe it is imperative that any process developed for ap- 
proval of GMOs is fully transparent to all parties. 

In summary, the State of Arizona advocates for and urges you to 
support the unilateral reduction of foreign subsidies and tariffs, im- 
plementation of rules for the trade of perishable and seasonal com- 
modities, clarification of existing dispute resolution mechanisms, 
adherence by all WTO member countries to the Uruguay round 
Agreement on Sanitary and Phytosanitary Measures, and trans- 
parent market access for genetically modified organisms. 

On behalf of the State of Arizona and Governor Hull and the ag- 
riculture industry, I thank you for this opportunity. 

Chairman Crane [presiding]. Thank you, Mr. Jones. 

[The prepared statement and attachments follow:] 

Statement of Sheldon R. Jones, Direetor, Arizona Department of 
Agriculture, Phoenix, Arizona 

Thank you, Mr. Chairman, for inviting my testimony on the importance of strong 
U.S. negotiation objectives for the World Trade Organization Seattle Ministerial 
Meeting in November. I am grateful to you and to the Subcommittee as a whole 
for giving me this opportunity to speak on behalf of the State of Arizona on why 
it is crucial that the U.S. continue its ambitious trade agenda. Now, more than ever, 
it is imperative that the U.S. negotiate and enforce agreements worldwide which 
will create open and fair markets for U.S. products and services. 

This process of engagement will insure our continued growth and standard of liv- 
ing into the 21st Century. My testimony will touch on why an aggressive trade pol- 
icy to open markets is important to the agricultural industries of Arizona’s economy. 

Allow me to begin by stating Arizona fully supports legislation providing the Ad- 
ministration Fast Track trade authority. An export dependent industry, U.S. agri- 
culture must be able to compete in foreign markets on a level playing field. Without 
authority to negotiate trade agreements, the Administration cannot fully assure ag- 
riculture a place at the table in the international market place. 

Comprehensive negotiating authority is needed to address high tariffs, trade-dis- 
torting subsidies, and other restrictive trade practices through hirther World Trade 
Organization (WTO) negotiations. Negotiating authority is also needed to pursue 
promising new opportunities for market opening trade agreements in Latin Amer- 
ica, Asia and elsewhere. 

Equally important to nurturing existing trade alliances, is the commitment to en- 
sure that trade liberalization continues so the agriculture industry can compete fair- 
ly in the global market place. As price supports continue to be phased out under 
the 1996 Farm Bill, international trade has become increasingly important to the 
stability of agriculture. Fast Track gives the U.S. the tools necessary to continue to 



177 


play a role in the trade liberalization process and the opening of overseas markets 
to quality agricultural products. 

Passing Fast Track legislation will provide the Administration with the necessary 
authority to assure the U.S. competitiveness in foreign markets does not continue 
to suffer. The United States has 4% of the world’s population and controls 22% of 
the world’s wealth. In the next fifteen years, the developing countries in both Latin 
America and Asia are expected to grow three times as fast as the United States, 
Europe and Japan. With this information it is clear to see that if 4% of the world’s 
population wants to maintain 22% of the world’s wealth, or grow more control, we 
must open up the world’s fastest growing markets to U.S. products and services. 

Recently, the Arizona Department of Agriculture had the opportunity to partici- 
pate in the formation of a coalition, known now as NFACT, with the departments 
of agriculture from New Mexico, Florida, California, and Texas. NFACT represents 
over 23% of total U.S. agricultural cash receipts, as well as 25% of the entire U.S. 
Congressional Delegation. Agricultural exports from the states represented by 
NFACT in 1997 alone were estimated to be over $5 billion. Among the positions 
these five states gained consensus is the issue of international trade. While we rep- 
resent varied constituencies, our concerns with fundamental agricultural trade 
issues are similar. My comments today will reflect many of the concerns the NFACT 
coalition has expressed to the Office of the United States Trade Representative, the 
United States Department of Agriculture, and to Members of Congress in recent vis- 
its. 

Arizona already benefits from a number of agricultural trade agreements. Since 
Arizona is the only documented fruit fly-free state in the United States, our citrus 
is in high demand throughout the world, especially Southeast Asia, China and 
Japan. With more than 25% of Arizona’s farm receipts coming from cattle, our state 
benefitted from the significant reduction of beef export and slaughter tariffs by a 
number of countries following agreements reached at the Uruguay Round, including 
Korea, Japan, Mexico, and the European Union. 

According to the Arizona Department of Commerce, economists agree that Arizo- 
na’s overall economy will remain strong throughout 1999, with job creation heading 
the list of positive indicators. Exports of Arizona based companies topped $11.4 bil- 
lion in 1998, a decline from the record-breaking total of $13.8 billion in 1997, but 
still the second most successful year in the state’s history. Arizona exports topped 
$2.8 billion for the first quarter of 1999, down 3.7% compared to the first quarter 
of 1998. This decline has been attributed to the effect of the “Asian flu” on Arizona- 
based companies. However, Arizona exports to North American Free Trade Agree- 
ment (NAFTA) member countries have increased dramatically since the negotiation 
of the Agreement. 

Western Blue Chip Economic Forecast (April), a consensus forecast of economists 
from 10 Western states, ranked Arizona #1 in the nation for nonagricultural job 
growth in 1998. With a 4.7% increase, Arizona surpassed Nevada which had held 
the top position for the past four years. 

However, even with the tremendous job growth in urban populations of Arizona, 
my state’s rural and chiefly agricultural communities are feeling the pinch. With 
sagging prices, labor shortages, increased costs and diminishing abilities to compete 
in domestic channels of trade, Arizona’s farmers and ranchers are now, more than 
ever, looking to the global marketplace to earn their living. My testimony today will 
provide you with valuable insight to the concerns of Arizona’s farmers and ranchers 
when faced with the challenge of gaining foreign market access. 

The World Trade Organization today is the result of fifty years of American lead- 
ership in the creation of an international trading system. This system was designed 
with the primary goal of tearing down foreign trade barriers and promoting a sin- 
gular rule of law in the arena of international trade. 

The WTO has worked to cut tariffs and quotas on farm and ranch products world- 
wide. However, many will agree there is much more to be accomplished. I applaud 
both Ambassadors Barshefsky and Esserman for their commitment to address the 
concerns of the U.S. agriculture industry in its recently circulated “Objectives for 
the Agriculture Negotiations.” While I fully support the four objectives to which the 
USTR has committed its attention, I believe the trade issues facing agriculture in 
America extend much deeper and deserve further specific attention. 

Today I will touch on five issues which the State of Arizona views as critical to 
the success of any international trade system for agricultural products. Those issues 
are the Reduction of Foreign Subsidies and Tariffs, Implementation of Rules for Per- 
ishable and Seasonal Commodities, Dispute Resolution Mechanisms, Adherence to 
Sanitary and Phytosanitary Agreement, and Transparent Market Access for Geneti- 
cally Modified Organisms. 



178 


• The State of Arizona supports the unilateral reduction of all foreign 
subsidies and tariffs on all agricultural products. 

Ample time has passed since WTO initiated agricultural trade reform and it 
should not be unrealistic to expect the WTO member countries to have significantly 
reduced agricultural dependence on government support. Arizona recognizes the 
prerogative of sovereign nations to support farmers and ranchers if they so choose. 
However, it is important that the WTO address the distortions these measures of 
support have caused to production and trade. 

The 1996 Farm Bill clearly established the expectation of this government that 
U.S. agricultural industries would learn to compete internationally without sub- 
sidization, in the field or the marketplace, or face going out of business. We, as a 
whole, recognized the need to redirect this sector of our economy to a self-sufficient 
market-driven industry. The days of heavy government assistance for farming and 
ranching in this country were over. This, as we all know, just isn’t the case through- 
out the rest of the world. 

Without the elimination of government field and market subsidization of WTO 
member countries’ agricultural industries, U.S. farmers and ranchers CANNOT 
COMPETE. 

Equally important is the issue of tariffs placed on agricultural products. The State 
of Arizona supports the reciprocal reduction of tariffs in WTO member countries on 
U.S. agricultural products. 

The tariffs on fruits and vegetables entering the United States, for example, are 
among the lowest in the world. Legitimately, the agricultural producers of Arizona 
believe that reciprocity should be granted and all such tariffs in WTO member coun- 
tries be uniformly reduced. It also warrants clarification that true reductions in tar- 
iffs should be thorough in nature. That is, not only should the bound rate be ad- 
dressed when reductions are made but, rather, the currently applied rate should be 
addressed simultaneously. If the applied rate is not addressed, often times the tariff 
reductions are meaningless and I applaud the USTR for recognizing the need to re- 
duce the disparity between the applied and bound tariff rates. 

• The State of Arizona supports the implementation of rules for the trade 
of perishable and seasonal commodities. 

In fiscal year 1997, Arizona agricultural operations, raising everything from arti- 
chokes to cotton lint, corn to honey, to tomatoes and watermelon, generated nearly 
$2.2 billion in cash receipts from amcultural marketings. While Arizona produces 
a variety of crops, a great number of the commodities produced in my state are sea- 
sonal and perishable in nature. Presently, no specific rules exist to deal with the 
trade of perishable and seasonal commodities. When asked if specific rules for per- 
ishable commodities were needed at the Ag Forum immediately preceding the Free 
Trade Area of the Americas Business Forum in Belo Horizonte, the head of the Uru- 
guay Round agriculture negotiating team agreed that the promulgation of such rules 
would be both helpful and advisable for all WTO member countries. 

Because Arizona and its NFACT counterparts produce a tremendous number of 
fruits and vegetable as well as live animal agriculture, I urge the USTR to develop 
immediately trade rules for these valuable perishable and seasonal commodities. 
Failing to do so guarantees the producers of non-traditional crops in my state as 
well as those in other “non-Farm Belt” states are being left behind. 

• The State of Arizona supports the implementation of a workable and 
meaningful dispute resolution mechanism. 

Presently, Arizona believes the avenues for dispute resolution within the WTO in- 
adequately suit the needs of perishable and seasonal commodities. By their very na- 
ture, these commodities require timely solutions to insure that perishable shipments 
are not lost to bureaucratic or political mechanisms. In the new round of negotia- 
tions, Arizona recommends the U.S. solicit clarification of the dispute settlement 
process with a strong enforcement mechanism, limited settlement appeals and strict 
compliance deadlines. 

• The State of Arizona supports the Uruguay Round Agreement on Sani- 
tary and Phytosanitary Measures. 

Despite the adoption of the Uruguay Round Agreement on Sanitary and 
Ph 3 d;osanitary Measures (SPS), a number of WTO member countries continue to im- 
pose sanitary and phytosanitary measures which are questionable, at best, in na- 
ture and sincerely lack a basis in sound science. These SPS measures create tremen- 
dous barriers to market access abroad for U.S. agricultural products. 

While some WTO member countries wish to reopen the SPS Agreement for 
amendment, the State of Arizona believes the WTO’s strict enforcement and thor- 
ough implementation of the SPS Agreement and adherence to these standards by 
all member countries is absolutely essential to the success of any international trade 
system. 



179 


With an increased emphasis on international trade, Arizona, and its border state 
counterparts, has experienced significant increases in detections of plant and animal 
pests and diseases at our borders. These detections will have devastating economic 
impacts to U.S. agricultural producers if left unmanaged by the U.S. and trade alli- 
ances like the WTO. Unfortunately, U.S. Customs, the United States Department 
of Agriculture and the U.S. Food and Drug Administration have not been able to 
provide adequate border inspections and surveillance efforts due to budgetary and 
staffing constraints leaving the enforcement of federal inspections in large part to 
State governments. 

I urge the U.S. negotiators to address the SPS Agreement in their efforts to nego- 
tiate the objective of implementation. Focus must be made on the enforcement of 
legitimate science-based sanitary and phytosanitary measures and not based on the 
non-tariff trade barriers promulgated by other nations. 

• The State of Arizona supports transparency and science in genetically 
modified organism approval process and market access for genetically 
modified organisms 

I support the Administration’s recently circulated position to the WTO entitled 
“Measures Affecting Trade in Agricultural Biotechnology Products.” As a representa- 
tive of a $6.3 billion dollar industry in Arizona, I am tremendously concerned that 
the European Union’s approval system for biotechnology products is a process rooted 
in hysteria and lacking transparency. 

The State of Arizona continues to advocate for global market access for genetically 
modified organisms in all WTO countries. Further, we believe it is imperative that 
any process developed for the approval of GMOs is fully transparent to all parties. 

In summary, the State of Arizona advocates for and urges you to support the uni- 
lateral reduction of foreign subsidies and tariffs; implementation of rules for the 
trade of perishable and seasonal commodities; clarification of existing dispute reso- 
lutions mechanisms; adherence by all WTO member countries to the Uruguay 
Round Agreement on Sanitary and Phytosanitary Measures; and transparent mar- 
ket access for genetically modified organisms. 

On behalf of the State of Arizona, the Arizona Department of Agriculture and the 
multi-billion dollar industries it supports, I want to thank you again for providing 
our local government the opportunity to share with you our concerns for the upcom- 
ing Ministerial meeting in Seattle. 

July 17, 1999 

The Honorable Charlene Barshevsky 
U.S. Trade Representative 
600 17th Street, N.W. 

Washington, D.C. 

Dear Ambassador Barshevsky: 

Agricultural representatives of 44 states and provinces from the three NAFTA 
countries met at the States-Provinces Agricultural Accord in Salt Lake City, July 
16-17, 1999. A key objective was to develop common positions for the upcoming 
WTO negotiations that will provide increased potential for the profitability and long- 
term viability of our producers. 

Our countries must adopt a negotiating strate^ that makes agriculture the high- 
est priority for the upcoming WTO round. Negotiating strategies that leave the dif- 
ficult agricultural issues unresolved will be detrimental to the future growth and 
prosperity of our agricultural industries in all three countries. Any WTO agreement 
that does not include substantially improved rules in agricultural trade will be 
judged a massive failure by our farmers and ranchers. 

We urge you to utilize the following recommendations as you work to finalize your 
negotiating strategy. 

Sanitary ! Phytosanitary Issues: The Sanitary/Phytosanitary (SPS) chapter should 
remain intact and closed to further negotiation. However, the process supporting the 
SPS chapter must be strengthened and effectively enforced in order to ensure WTO 
member compliance. Improvements in efficiency of the WTO Dispute Settlement 
Mechanism are required in order to ensure these issues are resolved and enforced 
in a timely manner. Too often, scientifically unfounded SPS and technical issues 
have been used to deny market access for our respective nations’ agricultural prod- 
ucts. 

Perishable and Seasonal Products: We urge the creation of specific rules and proc- 
esses for trade in perishable and seasonal products that address the unique nature 
of these products. 

Export Subsidies: Continued excessive use of export subsidies by the European 
Union (EU) erodes the competitiveness and profitability of our agricultural indus- 
tries. Therefore, we urge you to work towards the elimination of all direct export 



180 


subsidies and pursue the substantive and progressive reduction of trade-and produc- 
tion-distorting supports worldwide. Current inequities in supports provided by the 
EU and other countries must be addressed through establishment of rules that will 
lead to faster downward adjustment by these countries. 

Food Safety. Food safety is of primary concern to the agricultural industries and 
consumers of the three countries. With this in mind, we urge intensified efforts to 
educate and inform consumers and regulators on the scientifically-based issues sur- 
rounding biotechnology. International regulatory measures must be based on sound 
scientific principles and approval procedures for genetically enhanced products must 
be effective in ensuring safety. These procedures must not be used as a trade bar- 
rier. 

Dispute Resolution Measures’. Effective safeguard mechanisms and rapid dispute 
resolution measures that do not require expensive litigation are needed. This will 
provide another method to current anti-dumping laws which include, in part, “cost 
of production” and “market price” tests. 

Harmonization of Standards’. The international harmonization of pesticide and 
animal drug usage and standards must also be a priority. We must work to har- 
monize to the highest possible standards. 

The issues outlined above are paramount to the continued viability of our agricul- 
tural industries. As you finalize preparations for the WTO negotiations, it is critical 
that you extend every effort to improve our trading position and create an environ- 
ment that affords increased market opportunities for our producers. 

Your immediate attention to these issues is requested and we look forward to your 
response. 

Sincerely, 

Cary Peterson, 

President, 

National Association of State Departments of Agriculture 
United States of America 
Jaime Rodriquez Lopez, 

President, 

Mexican Association of State Departments of Agriculture Development 

Mexico 

Eric Upshall, 

Chair, 

Provincial Ministers of Canada 
Canada 


July 17, 1999 

The Honorable Dan Glickman 
Secretary 

U.S. Department of Agriculture 
Washington, D.C. 

Dear Secretary Glickman: 

Agricultural representatives of 44 states and provinces from the three NAFTA 
countries met at the States-Provinces Agricultural Accord in Salt Lake City, July 
15-17, 1999. A key objective was to develop common positions for the upcoming 
WTO negotiations that will provide increased potential for the profitability and long- 
term viability of our producers. 

Our countries must adopt a negotiating strate^ that makes agriculture the high- 
est priority for the upcoming WTO round. Negotiating strategies that leave the dif- 
ficult agricultural issues unresolved will be detrimental to the future growth and 
prosperity of our agricultural industries in all three countries. Any WTO agreement 
that does not include substantially improved rules in agricultural trade will be 
judged a massive failure by our farmers and ranchers. 

We urge you to utilize the following recommendations as you work to finalize your 
negotiating strategy. 

Sanitary I Phytosanitary Issues: The Sanitary/Phytosanitary (SPS) chapter should 
remain intact and closed to further negotiation. However, the process supporting the 
SPS chapter must be strengthened and effectively enforced in order to ensure WTO 
member compliance. Improvements in efficiency of the WTO Dispute Settlement 
Mechanism are required in order to ensure these issues are resolved and enforced 
in a timely manner. Too often, scientifically unfounded SPS and technical issues 
have been used to deny market access for our respective nations’ agricultural prod- 
ucts. 



181 


Perishable and Seasonal Products: We urge the creation of specific rules and proc- 
esses for trade in perishable and seasonal products that address the unique nature 
of these products. 

Export Subsidies'. Continued excessive use of export subsidies by the European 
Union (EU) erodes the competitiveness and profitability of our agricultural indus- 
tries. Therefore, we urge you to work towards the elimination of all direct export 
subsidies and pursue the substantive and progressive reduction of trade-and produc- 
tion-distorting supports worldwide. Current inequities in supports provided by the 
EU and other countries must be addressed through establishment of rules that will 
lead to faster downward adjustment by these countries. 

Food Safety. Food safety is of primary concern to the agricultural industries and 
consumers of the three countries. With this in mind, we urge intensified efforts to 
educate and inform consumers and regulators on the scientifically-based issues sur- 
rounding biotechnology. International regulatory measures must be based on sound 
scientific principles and approval procedures for genetically enhanced products must 
be effective in ensuring safety. These procedures must not be used as a trade bar- 
rier. 

Dispute Resolution Measures'. Effective safeguard mechanisms and rapid dispute 
resolution measures that do not require expensive litigation are needed. This will 
provide another method to current anti-dumping laws which include, in part, “cost 
of production” and “market price” tests. 

Harmonization of Standards'. The international harmonization of pesticide and 
animal drug usage and standards must also be a priority. We must work to har- 
monize to the highest possible standards. 

The issues outlined above are paramount to the continued viability of our agricul- 
tural industries. As you finalize preparations for the WTO negotiations, it is critical 
that you extend every effort to improve our trading position and create an environ- 
ment that affords increased market opportunities for our producers. 

Your immediate attention to these issues is requested and we look forward to your 
response. 

Sincerely, 

Cary Peterson Jaime Rodriguez Lopez 
President President 

National Association of State Departments of Agriculture 
United States of America 
Jaime Rodriquez Lopez, 

President, 

Mexican Association of State Departments of Agriculture Development 

Mexico 

Eric Upshall 

Chair 

Provincial Ministers of Canada 
Canada 


Chairman Crane. Your testimony basically supports all the posi- 
tions of our U.S. Trade Representative and I am wondering if there 
is any area where your perspective differs from the administra- 
tion’s views on these issues? 

Mr. Jones. Mr. Chairman, we have worked real hard with Am- 
bassador Barshefsky and Sue Esserman specifically on the seasonal 
and perishable commodities. And uniquely enough we do see eye to 
eye on a lot of those issues, and we appreciate their support. 

Chairman Crane. Well, I think you have profound insights down 
there, especially based upon your legislative liaison behind you, Ni- 
cole Waldron, who used to be an intern in my office. And she and 
I are alumni of the same little college up in Michigan, Hillsdale, 
so you are privileged, Mr. Jones, to have her on your staff. 

I want to ask Mr. Lake a question. What does AFLAC stand for? 

Mr. Lake. American Family Life Assurance Co. of Columbus. 

Chairman Crane. Assurance. 



182 


Mr. Lake. Yes. 

Chairman Crane. Not insurance. 

Mr. Lake. Yes, that is correct. 

Chairman Crane. Because I have seen it American Family Life 
“Insurance” Co., which would be AFLIC, and that is why I was cu- 
rious, because my staff does not have the answer to why it is called 
AFLAC sometimes and I have never see it as AFLIC. 

Mr. Lake. Right. 

Chairman Crane. I just want to make sure that you are using 
the right acronym there. 

At any rate, I congratulate you on the comprehensive nature of 
your proposal for achieving the regulatory reform in the service ne- 
gotiations and also for working to build support for it among Euro- 
pean companies. Has USTR been receptive to your approach? 

Mr. Lake. Yes. I think they are studying the paper that was pro- 
vided to them, and we are working as an industry — the associa- 
tions that are listed in our submission are working very closely 
with the USTR. We hope to move forward on that basis. 

Chairman Crane. And, Mr. Smith, past attempts to bring labor 
issues into the WTO have met with virulent opposition from less 
developed countries who believe it will establish a pretext for pro- 
tectionist trade restrictions. Is there a way to assure them other- 
wise so that the Seattle Ministerial doesn’t become a standoff be- 
tween the U.S. and LDCs on labor issues like what happened in 
Singapore? 

Mr. Smith. Mr. Crane, I don’t know the answer to that. The 
question of labor rights, we believe, is one where both the devel- 
oped and the developing world have common cause; that the ab- 
sence of robust democratic civil society institutions, including trade 
unions, is part of what sets the stage for some of the disasters like 
we saw in East Asia over the last years, the absence of a society 
that could function at all levels. 

It is also important, I think — and we have an important job to 
do, all of us, in talking to our brothers and sisters in the developing 
world — it is important to make the point that in the absence of 
widely agreed upon and widely adhered-to standards, we do en- 
courage a race to the bottom. We do pit precisely those countries 
who can least afford it, whose people can least afford it, who most 
need standards which begin to harmonize incomes upward and deal 
with income inequality — those countries do not need to be fighting 
with each other, and fighting in the way that is most difficult for 
their citizens. Pitting the poor people of eastern Africa against the 
poor people of Southeast Asia is a crazy way for the world to pur- 
sue international trade. 

Chairman Crane. What is the AFL-CIO’s key objective in the 
Seattle Ministerial? 

Mr. Smith. Our key objective is to make substantial progress on 
the question of incorporating enforceable labor rights and other so- 
cial standards in the WTO regime. The most important step in Se- 
attle would be to begin down that road in the creation of a working 
group toward that end. 

Chairman Crane. Mr. Levin. 

Mr. Levin. It is the end of the day, but in some respects I think 
we have touched on one of the more important issues in your an- 



183 


swer, Mr. Smith, to Chairman Crane. I hope everybody will hear. 
You say that we meaningfully need to begin to go down the road. 
I think people should understand no one is expecting overnight 
transformations. One is hopeful, and one can expect a structure 
that assures meaningful movement. 

I kind of chuckled, Mr. Dawson, when you described so effec- 
tively what is at stake with information technology. There will be 
controversy about some of these issues. An earlier panelist sug- 
gested we shy away from controversy at Seattle. Lord, there has 
never been a meaningful trade negotiation that was not embedded 
in controversy. 

It is going to be difficult. On environmental issues we face a real 
struggle over the Kyoto agreement as to the extent to which evolv- 
ing economies participate in the evolution — not the revolution, the 
evolution of environmental standards. And until that is resolved, I 
don’t think the Kyoto agreement will ever get the votes in the Sen- 
ate. 

I think the same is true of labor market issues and with informa- 
tion technology. You are cautious, you do not want us to push 
issues before they are ripe, but I take it you want us to press 
issues to help make them become ripe. I think we need to do ex- 
actly that at Seattle to set the stage. 

You know, the issue of taxation in terms of the Internet is a con- 
troversial issue internally within this country, and you can just 
imagine what is going to happen as we confront it internationally. 
And it will be controversial, but we in this country have certainly 
faith in the evolution of free markets, and I think they should in- 
clude all kinds of market, capital markets and labor markets, and 
I think increasingly that will have to be true of information tech- 
nology. 

And I think we will expect some resistance, right? 

Mr. Dawson. I did not mean to paint a picture that was without 
controversy. 

Mr. Levin. I am agreeing. I think it will be controversial. 

Mr. Dawson. We are not cattle or bananas yet, though, I must 
admit. 

Mr. Levin. No, but it could happen quickly. 

Mr. Dawson. Yes. 

Mr. Levin. I am not sure of that analogy, but we are having im- 
mense trouble with bananas and cattle, and I suspect the notion 
we had trouble at Singapore, so do not even unfold our tent, that 
is nonsense in the labor market issues. And the same is going to 
be true of the burgeoning information technology issues. They are 
doomed to be controversial because they are meaningful, right? 
And we have to figure out how far we want to go at Seattle. Expect 
resistance. But we have in mind the evolution of markets in terms 
of information technology. 

But I need to go and leave and see if I can get a ticket for my 
grandson on the Internet so I can take him back to Michigan. 
Through a travel agency. 

But anyway, Mr. Chairman, this has been a very useful hearing, 
and I think this last panel has really raised some vital issues, and 
we need to be in much further discussion. 



184 


Mr. Pepper, while he was here, talked to Mr. Smith about this 
group within ACTPN chaired by Mr. Sweeney, Mr. Donahue, and 
we wish them the best. 

Mr. Smith. Controversy is never very far away, but we are work- 
ing at it hard. 

Mr. Levin. Good luck. 

Chairman Crane. Could I add one quickie to some of Sandy’s in- 
quiries? Is there a chance that our trading partners will seek to de- 
fine electronic commerce as a service rather than a good in order 
to escape the more rigorous guidelines and requirements? 

Mr. Dawson. Yes. We are trying to lead them down a track that 
is difficult because we are describing it as being neither. Actually 
it is something quite different. And so that in and of itself is a sub- 
stantial part of our educational effort, that things can be a me- 
dium, a product, a good at one point, and they can be converted in 
commerce to a service. And it is a more exotic existence than what 
we are used to in this kind of binary world of goods and services. 

Chairman Crane. Well, there are more rigorous disciplines that 
apply to goods. That is why I was curious. 

Well, gentlemen, I want to thank you all for your participation. 
And as I told an earlier panel, please keep the channels of commu- 
nication going, because this is an ongoing battle, and it is not even 
going to be totally resolved in Seattle come the end of November 
or early December. But at least, God willing, and thanks to your 
input, we will make progress. Thank you all. 

[Whereupon, at 3:40 p.m., the hearing was adjourned.] 

[Submissions for the record follow:] 

AD Hoc WTO Round Processed Food Coalition 

Washington, DC 20006 

August 4, 1999 

A.L. Singletion, Chief of Staff 
Committee on Ways and Means 
U.S. House of Representatives 
1102 Longworth House Office Building 
Washington, DC 20515 


Re: WTO Seattle Ministerial 


Dear Mr. Singleton: 

On behalf of the Ad Hoc WTO Round Processed Food Coalition, the following July 
22, 1999 letter was sent to Ambassador Charlene Barshefsky relevant to the Seattle 
Ministerial and forthcoming multilateral trade negotiations. This letter is provided 
the Subcommittee on Trade in response to its July 8, 1999 request for private sector 
views relevant to the captioned subject. 

Ad Hoc WTO Round Processed Food Coalition 

Washington, DC 20006 

July 22, 1999 

Honorable Charlene Barshefsky 
U.S. Trade Representative 
Office of the U.S. Trade Representative 
600 17th Street, N.W. 

Washington, DC 20508 

Subject: Ad Hoc WTO Round Processed Food Coalition/ Recommendations for the 
Seattle Ministerial and New Round of WTO Negotiations. 

Dear Ambassador Barshefsky: 

We, the undersigned trade associations and food companies, are writing to under- 
score the priority that should be given at the Seattle Ministerial and forthcoming 



185 


World Trade Organization (“WTO”) negotiations to liberalizing trade in the proc- 
essed food sector. Further, this letter provides specific recommendations with re- 
spect to the scope, structure, and negotiating modalities that should be pursued in 
this important export sector to U.S. farmers, workers, and the American economy 
overall. 


Trade Liberalization in the Food Sector. 

The U.S. food processing sector recognizes that the major achievement of the Uru- 
guay Round was to introduce fundamental trade disciplines into the agriculture and 
food processing area. These new disciplines included the conversion of non-tariff 
measures to tariffs, the binding of tariffs at maximum levels, and rules on the use 
of sanitary and phytosanitary (SPS) measures. 

However, only minimal improvements in market access were actually achieved in 
the Uruguay Round. In some cases, conversion of non-tariff measures to tariffs actu- 
ally increased the degree of protection provided to processed foods. The complex tar- 
iff formulas adopted by some countries, particularly the nations of the European 
Union, impose high, variable tariffs based on standard “recipes” that may bear little 
resemblance to the actual composition of a processed food product. 

Despite the existence of significant market access barriers, world trade in proc- 
essed food products is increasing twice as fast as trade in primary commodities. By 
2000, trade in processed and value-added products is predicted to account for 75 
percent of global agrifood trade. A range of economies, including net food importing 
countries, now export processed foods. 

Value-added consumer-ready food exports have a greater positive impact on the 
U.S. economy than hulk commodity exports. In 1998, U.S. consumer-ready processed 
food exports to the world accounted for 39 percent of the total $51 billion of “agricul- 
tural” exports. For the first, time, the value of consumer-ready exports was equal 
to that of bulk agricultural commodities. 

Further processed products create high-paying jobs and value in the United 
States. Seven of the largest 10, and 22 of the largest 50, food processing firms in 
the world are headquartered in the United States. U.S. farmers and their families 
are a major beneficiary of increased exports of processed food products, both through 
farm sales and off-farm employment opportunities. For example, 1.9 billion pounds 
of U.S. -grown potatoes were purchased and further processed into exports of $286 
million in french fries in 1997. 

U.S. exports of processed foods would be even higher but for market access bar- 
riers. Globally, tariffs on processed foods remain higher than those on basic agricul- 
tural commodities, and higher than those on industrial products. Bound agricultural 
tariffs average over 40 percent ad valorem, and tariff bindings on processed foods 
average significantly more than 40 percent. 

Recommendations for the Seattle Ministerial and WTO Negotiations. 

The next round of trade negotiations will provide an opportunity to capitalize on 
the fundamental restructuring of the trade rules for food and agriculture. Strong op- 
position to lowering trade barriers is already apparent, and countries such as Japan 
and Norway — which fear low incomes and declining employment in agriculture — 
have positioned themselves to fight against further liberalization. The United States 
must take the lead in combating this opposition and insisting that further liberaliza- 
tion take place. 

The highest priority for the United States should be commercially meaningful re- 
ductions (including zero-for-zero in certain tariff lines) in tariffs and further dis- 
ciplines on non-tariff measures (NTMs) facing U.S. exports of highly competitive 
processed food exports. Such products include processed cereal products (e.g., cook- 
ies, crackers and snack foods); pet food; processed vegetable and fruit products (e.g. 
soups, french fried potatoes, juices and sauces); processed meat and poultry prod- 
ucts; and certain miscellaneous food preparations (e.g. formulated protein mixes and 
nutritional supplements). 

1. Tariffs. 

• The United States should insist on a formula that will lead to significant reduc- 
tions in tariff peaks, rather than a simple percentage reduction across the board. 
There is ample precedent for formula cuts in the industrial product area. The so- 



186 


called “Swiss formula” ^ was used for industrial goods during the Tokyo Round. 
There are any number of other ways in which such reductions can he achieved, in- 
cluding the harmonization of tariffs at certain levels or in certain hands. 

• A formula approach that cuts high tariffs more than low tariffs will help ad- 
dress “tariff escalation.” Tariff escalation occurs where tariffs for processed products 
are high compared to the primary products from which they are derived. Tariff esca- 
lation still prevails in important product chains in many countries, impeding im- 
ports of processed products. 

• Reducing high tariffs more than low tariffs will also help reduce the gaps and 
address the distortions that are created when countries have very high bound tariff 
rates, but apply actual tariff rates below the bindings. Countries often adjust these 
applied rates to protect domestic production from market price signals. 

• The United States should argue strongly for the simplification of tariff struc- 
tures. Complex formulas and tariffs based on “standard recipes” should be elimi- 
nated and replaced by straightforward ad valorem tariffs which are fair and con- 
sistent with free trade principles. 

• Countries must not be permitted to “average” tariff reductions in specific food 
and agricultural commodities to achieve agreed reductions. Averaging allows coun- 
tries to make high percentage reductions on already low tariffs, and lower percent- 
age reductions on lines with higher tariffs. In order to achieve meaningful improve- 
ments in trading opportunities, the reverse should occur: the greatest reductions in 
tariffs must occur where tariff levels are the highest. 

• Request-offer negotiations are not an acceptable negotiating option. In past nego- 
tiations, such an approach resulted in little improvement in overall market access 
or in disciplining trade barriers. Request-offer negotiations do not systematically ad- 
dress the problems of tariff escalation nor do they assure that very high tariffs will 
be reduced at all. However, should the United States ultimately find it necessary 
to engage in request-offer negotiations, efforts should be concentrated on processed 
food product commitments by nations in the Asia Pacific and South American re- 
gions. Despite recent economic difficulties, these regions show the greatest promise 
for intermediate-term processed product export opportunities. 

• The focus of U.S. negotiations should be to obtain significant multilateral com- 
mitments for food and agriculture as a whole. However, the Ad Hoc Coalition would 
also support a “zero-for-zero” ^ approach for specific product sectors such as soups, 
french fried potatoes, biscuits and snack foods, and pet food. 

• “Nuisanee Tariffs” (e.g. below 2 percent) should be eliminated. The Administra- 
tive costs to collect these tariffs exceed the revenue generated and are a hindrance 
to commerce. 

• The next Round of multilateral negotiations should eliminate all tariff-rate- 
quotas on agricultural products. This would complete efforts achieved in the Uru- 
guay Round to progressively liberalize and limit the use of tariff-rate-quotas. How- 
ever, the process of converting tariff-rate quotas to tariff equivalents should not re- 
sult in a reduction in market access. 

2. Non-Tariff Barriers to Trade. 

• The WTO Agreement on Sanitary and Phytosanitary (“SPS”) Measures — which 
insists on sound science and risk assessment — should not be open for negotiation in 
the new Round. 

• However, the Agreement on Technical Barriers to Trade should ensure that 
standards for biotechnology be based on sound science and not used as a disguised 
non-tariff trade barrier. 

• The U.S. government should support technical assistance to developing coun- 
tries, many of which lack the expertise to comply with SPS measures, labeling and 
technical standards of trade. 

3. Key Participation by Developing Countries. 

• Developing countries such as India must participate fully in the negotiations 
and provide improved access opportunities for processed food products. Consider- 
ation might be given, e.g., to modified tariff reduction commitments and extended 
implementation periods, but exemptions should not be permitted. 


^The “Swiss formula” is new tariff=(old tariff * agreed coefficient)/{old tariff +agreed coeffi- 
cient). Such a formula not only reduces the highest tariffs the most, but it also establishes an 
upper bound on all tariffs (depending on the coefficient chosen). 

2 The “zero-for-zero” approach is one in which countries agree that all tariffs on a group of 
specific products will be reduced to zero. During the Uruguay Round, such an agreement was 
successfully concluded for beer. 



187 


4. Services, Investment and Intellectual Property. 

• The Ad Hoc Coalition also supports renewed negotiations in the areas of serv- 
ices, investment and intellectual property. Enhanced agreements should guarantee 
freedom of sale, transport, and all forms of distribution (including direct selling); 
protect U.S. investments in the food processing, distribution and sales sectors of 
other nations; and protect U.S. brands and trademarks. Without such guarantees, 
improvements in market access will be meaningless. 

• Moreover, as famous U.S. brands become more globally dominant in the 21st 
century, we will witness an increase in efforts by developing countries to unfairly 
tax U.S. brands at higher rates than local brands and competing products. Such dis- 
criminatory taxation is a particularly serious problem facing the U.S. soft drink in- 
dustry and should be addressed in the next Round of WTO negotiations. 

We look forward to working with you as we approach the Seattle Ministerial and 
begin negotiating in 2000. With your support and leadership, the upcoming negotia- 
tions will at long last result in meaningful benefits for the U.S. food sector. We 
stand ready to provide whatever assistance might be appropriate. 


Sincerely, 

Bestfoods 
Campbell Soup 
ConAgra 
General Mills 
Herbalife International 
J. R. Simplot Co. 

Lamb-Weston 

National Food Processors Association 
National Potato Council 
Nestle USA 


Oregon Potato Commission 
Pepperidge Farm 
PepsiCo 

Pet Food Institute 
Procter & Gamble 
Ralston Purina 
Tricon Global Restaurants 
Welch’s 

Wm. Wrigley Jr. Company 


Respectfully submitted on behalf of the Ad Hoc WTO Round Processed Food 
tion, 

John F. McDermid 
President, IBC, 


Coali- 


Inc. 


Statement of the Aluminum Association, Inc. 

Mr. Chairman and Members of the Trade Subcommittee: 

The Aluminum Association appreciates the opportunity to present its views on the 
U.S. negotiating objectives for the WTO Seattle Ministerial Meeting. 

The members of The Aluminum Association are domestic producers of primary 
and secondary ingot, aluminum mill products and castings. Mill products include 
sheet and plate, foil, extrusions, forgings and impacts, electrical conductor, and wire, 
rod and bar. The membership also includes producers of master alloys and additives 
and aluminum pigments and powders. 

The association is a primary source for statistics, technical standards and infor- 
mation on aluminum and the aluminum industry in the United States. Member 
companies operate approximately 300 plants in 40 states. 

Overview 

The members of the Aluminum Association are fully committed to a fair and open 
world market for aluminum. We believe strongly that tariff elimination or reduction 
should occur only as the result of the mutual agreement of all the parties to a tariff 
negotiation, such as the up-coming WTO Seattle Round, and only over a multi-year 
phase-in period. 


Background 

The aluminum industry is global. The largest aluminum producers are multi- 
national companies production, fabricating and distribution facilities around the 
world. During 1998, world aluminum production totaled an estimated 22.1 million 
metric tons. 

The leading producing countries include the United States, Russia Canada, the 
European Union, China, Australia, Brazil, Norway, South Africa, Venezuela, the 
Gulf States (Bahrain and United Arab Emirates), India and New Zealand; together 
they represent more than 90 percent of the world primary aluminum production. 



188 


The major uses for aluminum are transportation, packaging and building and con- 
struction and the largest markets are North America, Europe and East Asia. 

The U.S is both a major importer and exporter of aluminum. Approximately 31 
percent of the U.S. supply of aluminum was imported from foreign producers in the 
in the form of primary ingot and scrap from Canada, Russia, Venezuela and Mexico 
and mill products from Canada and the EU. U.S. exports amounted to 13 percent 
of U.S. producer shipments in the form of ingot, scrap and mill products primarily 
to Canada, Mexico and East Asia including Japan and Latin America. 

Excluding NAFTA trade, the EU accounted for approximately 55 percent of U.S. 
mill products imports and only 17 percent of U.S. exports. East Asia (China, Hong 
Kong, Japan, Korea and Taiwan) accounted for 16.6 percent of U.S. imports and 
consumed 30 percent of U.S. exports. Latin America accounted for 10 percent of U.S. 
imports and 40 percent of U.S. exports. 

A substantial part of U.S. exports to the EU are shipments which are duty free 
under the Civil Aircraft Agreement. 

The attached tables provide comparisons of U.S. aluminum imports and exports 
for 1998 by region. 


Analysis 

The members of The Aluminum Association are firm believers in the objective of 
trade liberalization. They have long supported open and fair trade. They have seen 
the benefits from the elimination of tariffs and non-tariff measures under NAFTA 
and from the decision by the government of Japan in 1987, to achieve parity with 
U.S. tariffs on aluminum ingot, scrap and sheet and plate. 

The members of the association fully understand that the Agreement on Civil Air- 
craft, which provides for duty free access to the EU for aircraft parts, has enabled 
them to compete for business in the EU aircraft market. 

The potential growth of markets in Asia and Latin America promises opportuni- 
ties now and, even more so, in the future. The realization of that potential can only 
be redeemed when tariffs and other impediments to access to those markets have 
been significantly reduced or eliminated. 

As circumstances now stand, that realization will be delayed as long as high tar- 
iffs are maintained on aluminum and products made with aluminum. 

U.S. tariffs range from zero on ingot and scrap to 2.7 to 6.5 percent on most mill 
products. The tariff on aluminum can sheet, which is the largest single aluminum 
mill product consumed in the U.S. is three percent. By contrast EU aluminum tar- 
iffs are six percent on ingot and 7.5 percent on mill products. Tariffs in Japan are 
zero on ingot, the same as the U.S. for some categories of sheet and plate and 7.5 
percent or more on all other mill products. For most developing countries aluminum 
tariffs are in excess of 10 percent with many significantly higher than that. 

Conclusion 

It is highly unlikely that any of our trading partners will voluntarily reduce their 
bound aluminum tariffs, except as the result of an agreement reached during trade 
negotiations. Therefore, we recommend that, with respect to aluminum, the objec- 
tive of the WTO Seattle Ministerial Meeting be to achieve: 

an agreement by all major aluminum producing and consuming countries 
to eliminate tariffs and other impediments to trade in aluminum 
by phasing out those tariffs or other impediments, over a reasonable pe- 
riod of time, by a date certain, to be determined through multilateral nego- 
tiations. 

We thank you for this opportunity to express our views. 

ATTACHMENT 


U.S. Aluminum Exports by Region — 1998 

(Millions of Pounds) 


Region 

Total 

Ingot 

Scrap, & Dross 

Mill Products 

North America 

2,328 

445 

480 

1,404 

Latin America 

320 

6 

3 

311 

European Union 

143 

8 

5 

131 

Other Europe 

12 

* 


11 

East Asia 

834 

146 

457 

231 

Other Asia 

86 

3 

9 

74 

Oceania 

13 

1 


12 



189 


U.S. Aluminum Exports by Region — 1998 — Continued 

(Millions of Pounds) 


Region 

Total 

Ingot 

Scrap, & Dross 

Mill Products 

Africa 

5 

* 


5 

Total 

3,743 

610 

954 

2,179 


ASource: U.S. Department of Commerce 

U.S. Aluminum Imports by Region — 1998 


(Millions of Pounds) 


Region 

Total 

Ingot 

Scrap, & Dross 

Mill Products 

North America 

5,043 

3,177 

794 

1,072 

Latin America 

604 

389 

139 

75 

European Union 

469 

37 

58 

374 

Other Europe 

1,679 

1,541 

73 

65 

East Asia 

164 

49 

10 

105 

Other Asia 

180 

79 

69 

33 

Oceania 

151 

144 

1 

6 

Africa 

52 

34 

2 

16 

Total 

8,342 

5,449 

1,146 

1,747 


ASource: U.S. Department of Commerce 


Joint Statement of the American Crop Protection Association; American 
Forest and Paper Association; American Plastics Council; Biotechnology 
Industry Organization; Chemical Manufacturers Association; Chemical 
Specialties Manufacturers Association; Coalition for Truth in Environ- 
mental Marketing Information; National Association of Manufacturers; 
National Fisheries Institute; National Foreign Trade Council; Soap and 
Detergent Association, New York, NY; and U.S. Council for International 
Business, New York, NY; joint statement and attachments 

The undersigned business organizations welcome the opportunity to share our 
thoughts with the House Ways and Means Trade Subcommittee on an important 
trade and environment issue likely to arise in the forthcoming WTO negotiations, 
namely the “Precautionary Principle.” The Subcommittee has invited such com- 
ments in the context of your review of the objectives for the Seattle WTO Ministerial 
and the outlook for a successful meeting. We applaud the Subcommittee for reaching 
out to the private sector, and hope these comments will be helpful to your work. 

We expect the Precautionary Principle will be a topic of discussion at the WTO 
Ministerial, given, among other things, the European Union’s announced intention 
to seek “a clarification of the relationship between multilateral trade rules and core 
environmental principles, notably the Precautionary Principle.” 

It is important to note at the outset that the business community supports the 
use of caution and sound science in developing health and environmental standards. 
Indeed, the risk assessment principles and risk management that U.S. authorities 
apply to food, finished products, and other goods are extensive and include many 
types of precaution. The critical factor is that such standards are risk-based and jus- 
tified by sound science. 

The business community supports sound science and risk based precautionary 
measures which are cost effective, in line with the Principles of the Rio Declaration 
agreed at the Earth Summit in 1992. That Declaration also stated that unilateral 
trade measures should be avoided, and international consensus should be sought 
(Rio Declaration Principles 12 and 15 attached as Annex 1). 

Since 1992, multilateral agreements such as the Convention on Prior Informed 
Consent, the Sanitary and Phyto-Sanitary (SPS) Agreement and the Plant Protec- 
tion Convention have been put in place precisely to provide the kind of foresight en- 
visioned by the Precautionary Principle, but with the power of international con- 
sensus and systematic processes to better enable broad, global protections. 

The undersigned groups are concerned that the Precautionary Principle — as it is 
being applied in Europe and advocated by activist groups — is both a misinterpreta- 
tion of the principle and a radical departure from science and risk-based regulation 



190 


which could impede innovation and progress. Under such an interpretation, any as- 
sertion of harm or hazard — however remote the potential for harm or however flim- 
sy the evidence to support the assertion — justifies restricting or eliminating the use 
of a product. Meanwhile, certain industry sectors would be unfairly obliged to bear 
the resulting added costs of disproving alleged risks. If adopted, such a policy would 
cause the elimination of many beneficial products based solely on a mere assump- 
tion of hazard. Sound science and risk-based decision making would be crowded out. 

Against that background, a number of U.S. business and farm groups joined to 
express their concerns about international developments regarding the Pre- 
cautionary Principle in an April 14 letter to Ambassador Barshefsky {Annex 2). That 
letter asked the U.S. government to reject any version of the principle that does not 
rely on a risk assessment-based, science-justified approach, both in the WTO and 
in specific agreements and forums such as the SPS Agreement and the Biosafety 
Protocol of the U.N. Biodiversity Convention. 

In that letter, business and farm groups stated: 

“We recognize that uncertainty and risk are inherent in policymaking, and we 
support cooperative international efforts involving both the public and private sec- 
tors to develop scientific data that would improve the accuracy and relevance of risk 
assessments and harmonize methodology and quality assurance.” 

We have seen U.S. products that have been thoroughly assessed as safe by U.S. 
regulatory authorities, among the most highly developed and stringent in the world, 
rejected by other countries because of claimed and often unsubstantiated environ- 
mental and health concerns about the alleged absence of sufficient science, while cit- 
ing the Precautionary Principle as justification. 

Business is deeply concerned that a number of groups and countries seek to in- 
voke a misconstrued version of the Precautionary Principle as an absolute standard, 
overriding all others, to prevent well-justified human activities wherever any vestige 
of risk can be asserted, even speculatively. This abuse of the principle is counter 
to longstanding public policy, past human accomplishment and future human aspi- 
rations. 

The Precautionary Principle is but one of a number of well-recognized principles 
and factors that must be considered in uncertain situations that credible scientific 
evidence shows could pose a risk of serious or irreversible damages. These include 
consideration of the degree of uncertainty, the magnitude and possible consequences 
of risk, the ability to manage the risk, and analysis of whether or not proposed pre- 
cautionary responses are effective, feasible, cost-effective, and fair. 

In Seattle, the U.S. government delegation should advocate the essential impor- 
tance of a sound risk and scientific foundation for environmental standards and en- 
vironmentally-based restrictions on trade. Application of the Principle must recog- 
nize the science that is available even where 100% scientific certainty is not and 
may never be. Efforts to invoke the Precautionary Principle in the absence of any 
scientific information, or worse yet, with selective avoidance of scientific informa- 
tion, can only invite unnecessary conflict. Those who misuse the Precautionary Prin- 
ciple to add to public fears about product safety, without credible and widely recog- 
nized scientific evidence, mislead consumers, waste public resources and increase 
trade tensions. 

Therefore, the U.S. government should oppose strongly any effort to redefine the 
Precautionary Principle in a way that permits the circumvention of sound scientific 
and risk information and international consensus. In particular, the U.S. should 
block any effort to accept or codify the misuse of the Precautionary Principle, as the 
European Union is doing in the case of products containing Genetically Modified Or- 
ganisms. The U.S. government should emphasize that application of the Pre- 
cautionary Principle must be structured around: 

1. Sound Science, International Dialogue and Mutual Recognition of 
Standards; 

2. Sound Risk Assessment, Management, and Communication; 

3. Timely, Transparent and Non-Discriminatory Regulatory Procedures 
which are responsive to new scientific developments; 

4. Credible Sources of Environmental and Health Information; 

U.S. business has consistently called for multilateral, cooperative approaches to 
international environmental issues, and warned that unilaterally imposed trade re- 
strictions endanger economic prosperity, human health and environmental protec- 
tion. That position also has the full support of bodies such as the International 
Chamber of Commerce, the voice of international business. 

The Seattle WTO Ministerial offers a valuable opportunity to reaffirm the impor- 
tance of sound science and risk assessment in a rules-based trading system. Deci- 
sions to apply the Precautionary Approach will then be made in the best interests 



191 


of the environment and the public in ways that are cost effective and consistent 
with international trade disciplines. 

Trade and environmental policies should be rooted in sound science and risk as- 
sessment and not be driven by unsubstantiated allegations, scare tactics, and polit- 
ical gamesmanship, as has been the case too often outside the U.S., and especially 
in Europe. It is our hope that the U.S. government delegation in Seattle will use 
this opportunity to ensure that the inappropriate application of the Precautionary 
Principle does not spread throughout the WTO. 

We understand that USTR made a statement last week pertaining to these issues. 
We encourage USTR and the Administration to consult with business on how to ad- 
dress the role of the Precautionary Principle in international trade policy and hope 
the Congress will support a transparent and balanced discussion of the U.S. govern- 
ment position on this question as is warranted by its economic and environmental 
impacts. 

Endorsed by : 

American Crop Protection Association 

American Forest and Paper Association 

American Plastics Council 

Biotechnology Industry Organization 

Chemical Manufacturers Association 

Chemical Specialties Manufacturers Association 

Coalition for Truth in Environmental Marketing Information 

National Association of Manufacturers 

National Fisheries Institute 

National Foreign Trade Council 

Soap and Detergent Association 

U.S. Council for International Business 


The Rio Declaration on Environment and Development 

Principle 12 

States should cooperate to promote a supportive and open international economic 
system that would lead to economic growth and sustainable development in all 
countries, to better address the problems of environmental degradation. Trade policy 
measures for environmental purposes should not constitute a means of arbitrary or 
unjustifiable discrimination or a disguised restriction on international trade. Unilat- 
eral actions to deal with environmental challenges outside the jurisdiction of the im- 
porting country should be avoided. Environmental measures addressing 
transboundary or global environmental problems should, as far as possible, be based 
on an interesting consensus. 


Principle 15 

In order to protect the environment, the precautionary approach shall be widely 
applied by States according to their capabilities. Where there are threats of serious 
or irreversible damage, lack of full scientific certainty shall not be used as a reason 
for postponing cost-effective measures to prevent environmental degradation. 

April 14, 1999 

The Honorable Charlene Barshefsky 
United States Trade Representative 
600 17th Street, N.W. 

Washington, DC 20508 

Dear Madam Ambassador: 

The United States Council for International Business (USCIB) and a number of 
the other under-signed organizations were pleased to attend the recent World Trade 
Organization’s (WTO) High-Level Symposium on Trade and Environment. Govern- 
ments, business, and non-governmental organizations that participated had a useful 
exchange of views on a wide range of issues relating to the interface between envi- 
ronment and trade issues and policies. 

While we found the Symposium worthwhile, we were concerned by the U.S. Gov- 
ernment (USG) delegation’s statements on the Precautionary Principle and non- 
product related Processing and Production Methods (PPM’s). First of all, both in the 



192 


March 16-16 Statement (attached) and in other discussions, the USG seemed to en- 
dorse a broader application of the Precautionary Principle, even if the Principle 
itself was not always explicitly mentioned. Secondly, USG statements also appeared 
to signal a blanket acceptance of the use of non-product related PPM’s in environ- 
mental labels in a way that would set the stage for trade discrimination. In our 
view, these statements raise considerable doubt about the consistency of U.S. trade 
policy, especially in light of the government’s strong stance in the beef hormone case 
and in other current trade disputes and international negotiations. Let us address 
these two issues in greater detail. 

Precautionary Principle 

We recognize that uncertainty and risk are inherent in policymaking, and we sup- 
port cooperative international efforts involving both the public and private sectors 
to develop scientific data that would improve the accuracy and relevance of risk as- 
sessments and harmonize methodology and quality assurance. We believe the USG 
should reject any interpretation of the Precautionary Principle that does not rely on 
a risk-based, science-justified approach in the WTO and in specific agreements and 
forums such as the Sanitary and Phyto-Sanitary (SPS) Agreement and the Codex 
Alimentarius. We are concerned that the U.S. government’s characterization of the 
Precautionary Principle at the High-Level Symposium would seemingly undermine 
the fundamental importance of sound science as a basis for environment and other 
regulation. 

As you well know, U.S. trade has suffered substantially from trade restrictive 
measures by other countries which have based their actions on unacceptable inter- 
pretations of the Precautionary Principle, as Europe has done in the beef hormone 
case. Similar challenges face U.S. business in trade of biotechnology products with 
Europe, in the Biosafety Protocol negotiations, and in European environmental la- 
beling programs. These examples demonstrate all too clearly how interpretations of 
the Precautionary Principle which neglect scientific considerations can prevent le- 
gitimate trade in products whose risks can be identified and managed. 

PPM’s and Environmental Labeling 

The 1995 Report on Trade and Environment to the OECD Council at Ministerial 
Level made several important points relating to PPM’s, which we believe are still 
appropriate. That report stated explicitly that: 

“When PPM’s affect the characteristics of products, existing trade rules clearly 
permit the use of PPM-based trade measures, subject to agreed disciplines. How- 
ever, multilateral trade rules and disciplines make no provision for, and have been 
interpreted not to allow for, import restrictions based on characteristics which are 
not physically embodied in the imported products and therefore do not impact on 
the environment in the importing country.” 

The report had two specific findings or recommendations with respect to PPM’s: 

• OECD Governments agree that environmental concerns related to PPMs that 
have transboundary or global environmental effects are best addressed through 
international cooperation. 

• A further examination of the appropriate and effective role of PPM-based trade 
restrictions in MEAs is necessary. 

Given that no such study has taken place and no international consensus exists 
on the proper role of non-product related PPM’s within the international trading 
system, any USG position which condones their use outside of MEAs founded on es- 
tablished trade disciplines, as implied by USG statements at the High-Level Sympo- 
sium, would be premature and create a dangerous precedent. 

Regarding environmental labeling, we believe that such labels can provide factual 
information which enables consumers to make informed purchasing decisions. Re- 
grettably, most environmental labeling programs take the form of multi-criteria la- 
bels, developed and awarded through a non-scientific, largely political process. In 
the absence of an accepted scientific methodology that can fairly distinguish and jus- 
tify the overall environmental preferability of individual products within entire cat- 
egories, such labels have questionable environmental benefits. While voluntary, they 
can still create unfair competitive advantage and pose discriminatory trade barriers, 
especially when the labels’ criteria are based upon PPM’s. Therefore, we believe that 
the Agreement on Technical Barriers to Trade (TBT) should emphasize sound 
science and transparency and discourage non-product related PPM’s as a component 
of environmental labeling. These recommendations also pertain to any consideration 
of labeling for products derived from biotechnology. 

In conclusion, we believe the USG should advocate and pursue sound-science 
based multilateral responses to international environmental challenges, including 
PPM’s, without restricting trade. The USG views expressed at the Symposium ap- 



193 


pear to represent a major shift in U.S. policy away from these important principles. 
We would appreciate confirmation that the U.S. government’s statements should not 
be read to detract from our strong support for the trading system and strict adher- 
ence to the principles of the WTO. 

Sincerely, 

The American Bakers Association 
The American Farm Bureau Federation 
The American Forest and Paper 
Association 

The Biotechnology Industry Organization 
The Chemical Manufacturers Association 
The Grocery Manufacturers Association 
The National Association of 
Manufacturers 

The National Fisheries Institute 
The National Foreign Trade Council 
The National Mining Association 
The United States Council for 
International Business 

Enel. 

CC: Madeleine K. Albright, Secretary of State 
William M. Daley, Secretary of Commerce 
Daniel R. Glickman, Secretary of Agriculture 

Carol M. Browner, Administrator, Environmental Protection Agency 


Linkages Between Trade and Environmental Policies 

Statement of the United States 

As we noted in our earlier intervention, in the WTO’s Preamble, Members recog- 
nize that trade is not an end in itself and that sustained economic growth must be 
pursued in the broader context of sustainable development, which integrates eco- 
nomic, social and environmental policies. Moreover, the linkages between trade and 
environmental policies are multifaceted. Nevertheless, we believe that economic de- 
velopment and stronger protection of the environment go together. Experience has 
shown that greater attention to environmental concerns is directly correlated with 
better economic results at the national, industry and company levels. 

The relationship between the trading system and environmental regulations is an 
issue of particular importance to environmental policymakers and regulators in our 
respective countries. Modern trade agreements, of course, apply to domestic heath, 
safety, and environmental regulations in many ways. Also, we must recognize that 
regulatory choices often involve difficult judgement calls on complex matters as to 
which particular environmental policy tool is most appropriate in achieving a soci- 
ety’s desired environmental policy objective. Not only the science but the analysis 
of different regulatory alternatives is complex. In the United States, this process of 
choosing a regulatory tool generally includes an extensive process of public partici- 
pation and political accountability at the domestic level. 

In view of all of this, it is essential that WTO rules recognize and are fully con- 
sistent with the needs of 

regulators to take action to stringently protect health, safety and the environ- 
ment. It is necessary to ensure that obligations under international trade agree- 
ments do not hamper, but rather are supportive of, the ability of governments, at 
central and sub-central level, to maintain and enforce high levels of domestic protec- 
tion that they deem appropriate. 

As President Clinton said at last May’s WTO Ministerial Conference, “Inter- 
national trade rules must permit sovereign nations to exercise their right to set pro- 
tective standards for health and safety, the environment and biodiversity. Nations 
have a right to pursue these protections, even when they are stronger than inter- 
national standards.” 

We note that WTO Agreements specifically recognize the sovereign rights of Mem- 
bers to determine the level of protection that their standards are designed to 
achieve. This is important and must be maintained. In order to adequately protect 
the health of our citizens, we must maintain our right to ensure that products that 
enter our country meet our requirements. 



194 


One agreement of particular importance to health, safety and environmental pol- 
icy makers is the Agreement on Sanitary and Phytosanitary measures. Again, there 
are a number of provisions in this agreement that are particularly important to reg- 
ulators. This includes the Agreement’s provisions recognizing the rights of countries 
to maintain pre-approval requirements. As a matter of U.S. law and practice, for 
example, certain products (e.g., pesticides) must be approved before they can be 
marketed. We have adopted this approach in recognition of the fact that pesticide 
residues on foods may pose risks to health or the environment. In order to obtain 
approval to sell or distribute a pesticide, pesticide producers must provide sufficient 
data to enable regulators to determine that there are no unreasonable adverse ef- 
fects on public health or the environment. 

It is also important that the SPS Agreement recognizes the right of countries to 
take provisional measures in cases where relevant scientific information is insuffi- 
cient. This point is particularly important as policy makers often operate at the cut- 
ting edge of scientific information. To achieve our health, safety, and environmental 
objectives, it is a reality that we must be able to make decisions and take environ- 
mentally protective actions in the absence of full scientific certainty. 

The need to fully address regulators’ needs and concerns does not, of course, mean 
that we condone trade protectionist measures that are disguised as environmental 
measures — indeed, such measures would have the effect of casting doubt upon, and 
even undermining, environmental as well as trade policy objectives. 

Turning to the issue of the relationship between WTO rules and multilateral envi- 
ronmental agreements, or MEAs, our point of departure is that all WTO members 
are committed to multilateralism. As stated in the report of the CTE to the Singa- 
pore Ministerial Conference, “WTO Agreements and multilateral environmental 
agreements (MEAs) are representative of efforts of the international community to 
pursue shared goals, and in the development of a mutually supportive relationship 
between them due respect must be afforded to both.” There can be no doubt that 
the relationship between the WTO and MEAs is a partnership of equals. 

Clearly, it is important that MEAs be able to achieve their objectives, including 
through the use of trade measures, while at the same time being mindful of multi- 
lateral trade disciplines. To date there has never been any dispute concerning the 
provisions of an MEA. The past is not always a reliable predictor of the future. 
However, we believe that there is substantial flexibility under WTO rules to address 
environmental challenges through MEAs. Also, we believe that the possibility of 
conflict can be substantially reduced through policy coordination at the national 
level. Nevertheless, we must be sure that there is no doubt that we as WTO mem- 
bers support the efforts of environmental negotiators in cooperating to address envi- 
ronmental challenges of common interest. 

Turning to ecolabeling, it is broadly recognized that ecolabels can be an important 
tool for engaging consumers in environmental protection. At the same time, from 
both an environmental and trade perspective, it is important that such measures 
not be misused as a hidden form of protectionism. We believe that the WTO rules 
provide sufficient flexibility to permit all forms of ecolabeling, including those in- 
volving criteria based on processes and production methods, subject to appropriate 
trade disciplines of the multilateral trading system, including in particular trans- 
parency and non-discrimination. More generally, we think it is clear that the rules 
of the multilateral trading system can permit the application of innovative environ- 
mental policy tools. 

One way of helping to ensure that ecolabels meet their environmental objectives 
in a way that is mutually supportive of trade objectives is to provide transparency 
in the design of ecolabeling programs, the selection of products to be covered by 
ecolabeling, the selection of criteria for receipt of an ecolabel and the design of any 
conformity assessment procedure. That means there should be full transparency 
with an opportunity for public input at each critical stage of the program’s develop- 
ment. 

The issue of measures based on processes and production methods (PPMs) has 
been an important and controversial issue on the trade and environment agenda. 
We would note that the Appellate Body report in the Shrimp/Turtle dispute belies 
the notion that such measures are a priori out of bounds under WTO rules. How- 
ever, that report also makes clear that such measures must meet the rules of the 
trading system which guard against abuse. Without arguing the pros and cons of 
the specific measures at issue in the dispute, we wish to point out that the Appel- 
late Body has helped shed important light on the application of WTO rules in this 
area. 

Looking towards the future, we must look for innovative ways to ensure that 
WTO rules strike the right balance — promoting free trade in a manner consistent 
with and supportive of high environmental standards. As we noted earlier, we be- 



195 


lieve that as we embark on the next round of WTO negotiations, it would be useful 
to provide a forum where WTO members can identify and discuss links between ele- 
ments of the negotiating agenda and the environment. While negotiations on these 
issues would be the responsibility of the relevant negotiating groups, the proposed 
forum would help ensure that these links receive the attention that they deserve 
during the negotiations and help delegations to look at what they are negotiating 
from a broader perspective. We believe that the GTE could play this role. It has al- 
ready shown its capability to take on work along these lines through its work in 
analyzing the potential environmental benefits of trade liberalization in various sec- 
tors. 

The idea would be for the GTE to look systematically and transparently at all the 
various areas of negotiation on a rolling basis. After an initial run through of all 
the areas under negotiation, the GTE would continue to look at all of the issues so 
that the work of the GTE could evolve as the negotiations evolve. The GTE would 
identify and discuss issues, but not try to reach conclusions or negotiate these issues 
in the GTE itself. Rather, it would provide a report of its discussions to Members 
and the relevant negotiating groups. We would expect that the GTE’s work would 
play a valuable role in providing input to deliberations at the national level on posi- 
tions to be taken in the actual negotiating ^oups. Of course, we would have to be 
absolutely clear that the GTE’s role in identifying issues would not detract from, or 
interfere with, in any way the responsibilities of negotiating groups for addressing 
issues that are raised by Members on these or any other issues. 


Statement of the Ameriean Free Trade Assoeiation (AFTA), Miami, Florida 

This testimony is offered on behalf of the American Free Trade Association (AFT). 
The American Free Trade Association is a not-for-profit trade association of inde- 
pendent American importers, distributors and wholesalers, dedicated to preservation 
of the parallel market as a source of genuine and legitimate brand-name goods at 
reasonable cost to American consumers. The parallel market embraces a broad 
range of products, but AFTA’s members are primarily involved in sale and distribu- 
tion of fragrance, cologne, health and beauty aid (e.g. shampoo, soap, etc.) products. 

AFTA has been an active advocate of parallel market interests for over fifteen 
years. It has appeared as amicus curiae in the two leading Supreme court cases af- 
firming the legality of parallel market trade under the federal trademark, customs 
and copyright acts (the 1986 Kmart case and the 1998 Quality King case) and in 
numerous lower court decisions. The Association regularly addresses regulatory and 
legislative challenges to the parallel market through meetings and petitions with 
government offices. 

Because AFTA, and others, believe the preservation of the parallel marketplace 
is paramount to the goals and objectives of the WTO, it submits this written testi- 
mony in response to the Gommittee’s request for comments on the specific objectives 
of the upcoming WTO Ministerial. The parallel marketplace is an industry serving 
the interests of the international consumer and trader. Accordingly, we urge that 
the Administration give a priority to assuring that the Ministerial Meetings do not 
advance any principles which would curtail or diminish the legality of parallel mar- 
ket trade throughout the world. 

The Importance of the Parallel Marketplace 

Parallel Imports are genuine trademarked consumer products, such as fragrances, 
36 mm cameras, electronic products and watches which are manufactured abroad 
and imported by independent American importers rather than by “authorized” U.S. 
importers and distributors. Parallel imports exist primarily because the manufactur- 
ers, for reasons of their own, seek significantly higher prices for their products in 
the United States than elsewhere in the world. They do this by creating wholly- 
owned or controlled subsidiaries in this country, designating those companies as the 
exclusive “authorized” importers and distributors for their products here, and refus- 
ing to sell to retailers who will not maintain the higher prices for the products. 

The obvious result in a free enterprise, free trade market is that independent 
American importers can purchase the same products overseas at the world price, 
often directly from the manufacturers’ “authorized” distributors abroad. The foreign 
manufacturers’ price differential for the U.S. market is often so great that, even 
after paying shipping costs and U.S. Gustoms duties, the parallel importer can offer 
the identical articles for twenty to forty percent less than the U.S. “authorized” dis- 
tributor. 



196 


The result is a saving to American consumers amounting to billions of dollars a 
year. Another result is the availability of popular products to a much wider spec- 
trum of Americans who do not live in the large cities where the exclusive authorized 
stores are generally located. The parallel import trade has also served as an inde- 
pendent bulwark against unrestrained increases on the domestic price of imported 
consumer goods as compared to prices available worldwide. 

The WTO Objective 

On August 5, 1999 Lori Wallach of Global Trade Watch presented oral testimony 
to the Committee detailing how governments are utilizing international trade agree- 
ments to promote corporations’ needs over the needs and benefits of consumers and 
citizens. As stated by Ms. Wallach, parallel importing is a practice opposed by some 
manufacturers who seek to engage in significant price discrimination by geographic 
area. This practice of price and distribution discrimination undermines the very in- 
tention of the WTO which is to help trade flow as freely as possible and to achieve 
further trade liberalization. 

The Trade Related Aspects of Intellectual Property Rights Agreement (TRIPS) is 
administered by the WTO. The goal of TRIPS is the reduction of distortions and im- 
pediments to international trade, promotion of effective and adequate protection of 
intellectual property rights, and ensuring that measures and procedures to enforce 
intellectual property rights do not themselves become barriers to legitimate trade. 
All of these objections are hindered, if not prevented, by national legislation ban- 
ning, preventing or discouraging parallel imports. As can be seen in the present 
South African conflict, global recognition of the right of the parallel marketplace to 
exist is of paramount importance to any ongoing consideration of global economic 
and consumer rights. If citizens cannot be protected by international trade agree- 
ments, they serve no purpose whatsoever. If sick people are prevented access to 
cheaper pharmaceuticals in the guise of advancement of international trade and in- 
tellectual property considerations, we, as a global community, are failing our obliga- 
tions to our citizens. If the fear of competition from parallel imports is so great that 
WTO dispute mechanisms are relied upon to protect manufacturers from this type 
of free trade, then the very ideal by which the WTO was established is necessarily 
threatened. 


International Considerations 

In South Africa, parallel importation of generic drugs is being opposed by the U.S. 
government because drug manufacturers feel threatened by the competition of 
cheaper imports. This is despite the fact that these drugs may assist tremendously 
in curbing the rising rate of the spread of AIDS in that country. In New Zealand 
and Israel, the U.S. has threatened trade sanctions for repealing their bans on par- 
allel imports — even though the repeal was based on funded economic studies prov- 
ing that consumers would benefit tremendously from the increased competition and 
lower prices. In the United Kingdom, manufacturers are struggling to maintain 
their historic ability to charge British consumers much higher prices than other con- 
sumers in other countries pay for the identical goods and the Ministers are urging 
the repeal of trademark laws heretofore interpreted to deny parallel imports. In 
Japan, recent case law limits the prevention of parallel patented imports and recent 
studies clearly show that the practice is fully supported, albeit silently, by the man- 
ufacturers themselves. Summarily, the international community is struggling to reg- 
ulate, or deregulate, parallel market trade. 

In July 1998, in “Parallel Importing: A Victory for the Consumer” Garreth Mor- 
gan, a respected New Zealand columnist, reviewed the arguments submitted by op- 
ponents of New Zealand’s repeal of its prohibition against parallel imports. “The 
staunchest objection is that an owner of copyright should have the right to control 
distribution of the copyrighted product — that without it they cannot maximize the 
return from their investment. Conferring sole rights of control over these functions 
(distribution, service and warranty) would generate unnecessary market power and 
with that monopolistic pricing and production practices would proliferate — along 
with a reduction in consumer benefit. So long as copyright law ensures that the 
owner of the brand is able to levy purchasers a royalty at one stage of the produc- 
tion or distribution chain, then they can get a return for their intellectual product. 
There is no case that they should control all steps in the chain from producer to 
consumer. Next, it’s been suggested that ownership of the New Zealand-registered 
trademark can prevent others from using it. Again, to the extent that trademark 
law enables its owner to limit competition beyond that necessary to ensure the 
owner has an opportunity to charge a royalty for use of that ownership, it should 
be modified. Similarly the privilege that New Zealand-registered patents or reg- 



197 


istered designs confer should be limited to ensure that offshore owners aren’t pre- 
vented from having their products distributed here — so long as they’re not passed 
off as something they’re not. It is therefor totally unnecessary for the government 
to provide them additional protection on distribution — and indeed to do so harms 
purchasers. A presence in manufacture and distribution is fine, but using one activ- 
ity to dominate the market in the other, similarly compromises consumer sov- 
ereignty. 

The opinion of the Arbeitsgemeinschaft de Verbraucherverbande, the federal orga- 
nization of the German consumer associations, echoes the sentiments that free trade 
can only be accomplished through the international legalization of parallel importa- 
tion. “From the consumer associations’ point of view it is completely unreasonable 
that, in a context of increasingly global economic and trade relations, legal regula- 
tions can be in force which make it possible to artificially keep prices high and for 
manufacturers to block or considerably control distribution pathways for their prod- 
ucts which were legally brought on the market. For consumers, this casts doubt on 
the advantages of free world trade. Consumer organizations all over the world al- 
ready justifiably fear that continuing liberalization in world trade could also result 
in reduction of hard-gained national consumer protection standards.” 

And, Japan, which recently held that parallel imports of patented products was 
permissible (BBS Kraftverzueg Technik AG v. K.K. Racimex & K.K. Jap-Auto 
Proucts, Supreme Court of Japan 1988), has consistently held that parallel import- 
ing is generally considered to promote price competition in a market. Accordingly, 
restrictions on parallel importing are viewed with scrutiny under the Antimonopoly 
Law of Japan (the “Antimonopoly Law”). The guidelines to the Antimonopoly Law 
concerning Distribution Systems and Business Practices in Japan specifically ad- 
dress forms of restrictive conduct with respect to parallel importing which are 
deemed to the violations of the Antimonopoly Law. 

Throughout the World, government and courts permit and advocate parallel im- 
portation and the secondary marketplace. It is imperative that the global commu- 
nity not protect manufacturers at the cost of its citizens. Intellectual property laws 
must not be utilized to prevent free trade practices and parallel importation must 
be evaluated as a means to protect against monopolistic trade practices. 

The Domestic Situation 

In the United States, the parallel marketplace has long been sanctioned by fed- 
eral law. It is based in United States Customs and trademark laws and regulation 
(The Tariff Act, 199 U.S.C. 1526; The Lanham Act (15 USC 1051, et.seq.)). It has 
repeatedly been upheld as a legitimate industry by the United States Courts, includ- 
ing decisions by the Supreme Court over a decade ago (Kmart v. Cartier;) and as 
recently as February 1998 (Quality King V. LAnza International). The Congress has 
not been asked to reconsider or revise the law in the United States, although legis- 
lation which failed in the last Congress (H.R. 3891) but has been reintroduced in 
this Congress (H.R. 2100) would effectively eliminate the benefits of parallel trade 
in the United States. Neither bill invited Congressional evaluation of the benefits 
of parallel market to United States trade and consumers, as the bills were caste as 
intellectual property and health and safety measures, not as anti-parallel market 
bills. 

The Administration’s actions regarding the parallel market create a great fear 
that it might very well take a position at the Ministerial meetings contrary to 
United States law and contrary to the interests of United States consumers and 
trade community. As reported in the New York Law Journal May 11, 1998 article 
“U.S. Government in Tough Stand to Enforce Rights” by Catherine Curtiss, Edwin 
C. Bullock and Thomas P. Newman, The United States government has made a 
commitment to help United States trademark and copyright owners stop the impor- 
tation of gray market goods, despite it legality and its benefit to the consumer. This 
article describes the Quality King v. LAnza Reseorc/iSupremen Court decision and 
notes the Supreme Court’s objection to the Government’s position that to allow par- 
allel importation would be “inconsistent with a number of international trade agree- 
ments concluded by the United States.” The Supreme Court, in its decision, declared 
the government’s “international trade agreements” argument to be “irrelevant” to 
interpretation of statutory language enacted many years before the earliest of those 
agreements was made. Nevertheless, the Administration continues its efforts to 
force other countries to prohibit parallel trade, if not through express agreement, 
then via threats of economic trade sanctions.il IFor example, the United States’ 
Trade Representative, convened a special review of New Zealand’s repeal of their 
prohibition of parallel imports, stating that the action would have “sever con- 
sequences” extending “far beyond the New Zealand market.” However, New Zealand 



198 


only changed its laws concerning parallel imports after extensive government fund- 
ed research into the possible consequences on consumers and manufacturers. Based 
on these studies, the government determined that removing the ban would benefit 
consumers through lower prices and wider availability of goods, which are currently 
limited through exclusive franchise networks. In addition, even New Zealand’s Man- 
ufacturer’s Federation said the “advantages would outweigh the drawbacks” as man- 
ufacturers would be able to buy cheaper machinery and equipment. Nevertheless, 
for fear of its impact on international manufacturer monopolies and claiming the 
need to protect the integrity of intellectual property rights, the U.S. felt compelled 
to chastise New Zealand for its actions and threaten to place the country on the 
Special 301 Watchlist. 

In 1997, the Special 301 watchlist, the USTR’ annual review of intellectual prop- 
erty rights protection in more than 70 countries and identification of countries 
which are being “watched” by the U.S. intellectual property objectives and evaluated 
for possible sanctions should those objectives not be met, included the following 
countries: Argentina, because, among other things, “there is no provision for protec- 
tion from parallel imports; Venezuela because, among other things, there is a “lack 
of protection against parallel imports; and Colombia because, among other things, 
there is a “lack of protection against parallel imports.” 

The secondary marketplace employs hundreds of thousands U.S. citizens and en- 
gages small, tax-paying businesses throughout the country. The parallel market- 
place thrives because of the global marketplace and its continued operation nec- 
essarily depends upon equal treatment between trading partners. Parallel imports 
are products manufactured in one country and imported into another. The imported 
product, pursuant to the WTO, must not be discriminated against in favor of the 
domestic product. Accordingly, the U.S. parallel marketplace, like the industry in 
other countries, depends upon international adherence to the provisions set forth in 
the WTO. If these provisions are adhered to the recognized, even the United States 
government will have no choice but to advocate the parallel marketplace. 

The TRIPS Agreement is silent on the issue of parallel market trade legality. At 
the Ministerial meetings, the United States should make certain that the Agree- 
ment remains neutral on this issue — and certainly should not promote negotiations 
to render parallel market trade illegal. The Courts and the Congress have supported 
parallel market trade in this country; the Administration should not be taking a 
contrary position in the international arena. 

Conclusion 

In comments made to South Africa’s parliament, in October 1997, Mr. James Love 
of the Consumer Project on Technology (CPT) (a non-profit organization, created by 
Ralph Nader, located in the United States) stated the following: “Parallel imports 
can be an important source of price competition for many goods, recent decisions by 
the European Court of Justice and the Supreme Court of Japan clearly state that 
parallel imports of patented and trademarked goods are not contrary to inter- 
national law. National legislation regarding parallel imports varies from country to 
country. In many nations, parallel imports are not only permitted, but national anti- 
trust authorities actively take steps to prevent manufactures from discouraging or 
impeding parallel imports. This is the case, for example, in the European Commu- 
nity and In Japan. There is clearly no worldwide consensus about the exhaustion 
of IP rights. The older IP agreements, such as the Paris Convention and the Berne 
Convention, do not touch upon this issue at all. The most recent global IP agree- 
ment, TRIPS, carefully circumvents this issue; TRIPS Article 6 states that, for the 
purpose of dispute settlement, nothing in the agreement shall be used to address 
the issue of the exhaustion of IP rights. Legislation and jurisprudence on this topic 
is varied from country to country, with countries taking different and nuanced posi- 
tions on exhaustion of rights patents, copyrights and trademarks.” 

The Journal of International Economic Law, Volume 1, Issue 4, pp. 607-636, in- 
cludes the First Report (final) to the Committee on International Trade Law of the 
International Law Association on the subject of parallel importation by FM Abbott, 
Professor of Law, Chicago-Kent College of Law. The Report approaches the exhaus- 
tion/parallel imports question in broad economic terms, asking whether there may 
be an economic and social welfare benefit to permitting IPR holders to black parallel 
imports that outweighs the potential harm to liberal trade. The Report observes the 
most objective which IPR holders seek to achieve by the allocation of geographic 
markets can be attained through less trade restrictive means, namely through the 
vertical allocation of distribution territories by contract and that developing and de- 
veloped countries are better served by open markets and the operation of compara- 



199 


tive advantage. The Report recommends that the WTO adopt a rule precluding gov- 
ernments from blocking parallel imports save in certain exceptional cases 

We believe it is imperative that the global community not protect manufacturers 
at the cost of its citizens. Intellectual property laws must not be utilized to prevent 
free trade practices and businessmen throughout the World must believe they are 
free to compete in the international marketplace, the health and safety of sick pa- 
tients must not be compromised because manufacturers fear the importation of 
cheaper drugs and consumers’ rights must not be sacrificed in order to allow manu- 
facturers to discriminately distribute and price their products in order that they 
may unilaterally gain unjustifiably rich rewards. 

The American Free Trade Association believes that the international community 
is best served by a global consensus on parallel trade, this must be made a priority 
during the upon coming WTO Ministerial conference in Seattle. As economists re- 
ports are studied, as other countries’ decisions are evaluated and when consumers’ 
interests are held higher than the corporation’s, AFTA is certain that even the 
United States’ government will support what its court system has already held — 
parallel importation is a legitimate, beneficial industry that must be supported, ad- 
vocated and favored within the international marketplace. 


Statement of the Ameriean Iron and Steel Institute (AISI) 

AISI is pleased to submit testimony on U.S. objectives for the Seattle Ministerial 
and a new round of WTO talks. The following statement is submitted on behalf of 
AISTs U.S. member companies, who together account for approximately two-thirds 
of the raw steel produced annually in the United States. 

Need to Achieve Continued Progress in the WTO’s Built-in Agenda 

As the Seattle Ministerial prepares for a new round of multilateral trade negotia- 
tions, the main focus should be on achieving progress in the WTO’s “built-in agen- 
da” of existing rules on agriculture, services and intellectual property. Such progress 
can only be made if the United States resists efforts by other WTO members to re- 
open a counterproductive debate over the WTO’s antidumping and anti-subsidy 
rules. 

Need to Maintain Effective WTO Antidumping and Anti-Subsidy Rules 

It is the failure to counter injurious dumping and other unfair trade practices that 
undermines public confidence in free trade and public support for further multilat- 
eral trade liberalization. For more than 50 years, international trade rules (first the 
GATT, now the WTO) have allowed the U.S. and other countries to counter inju- 
rious dumping. The reason: there is clear recognition that, in the real world, there 
can be no free trade unless it is rule-based and fair. As soon as the public believes 
that existing trade rules are ineffective or are not being enforced, support for free 
trade begins to erode — and support for more restrictive, less transparent solutions 
inconsistent with international trade rules starts to grow. This is what has occurred 
in the United States in recent years, and the only way to reverse this trend is to 
ensure prompt and strict trade enforcement of more effective U.S. laws against un- 
fair trade. 

To quote from the July 1998 U.S. submission to the WTO Working Group on the 
Interaction between Trade and Competition Policy, the antidumping remedy is: 
“necessary to the maintenance of the multilateral trading system. With- 
out this and other remedial safeguards, there could have been no agree- 
ment on broader GATT and later WTO packages of market-opening agree- 
ments, especially given the imperfections which remain in the multilateral 
trading system. . . . [T]he antidumping rules represent an effort to main- 
tain a “level playing field” between producers in different countries . . . 
[and] are a critical factor in obtaining and sustaining necessary public sup- 
port for the shared multilateral goal of trade liberalization.” 

In recent years, AISI and its U.S. member companies have supported virtually 
every major initiative to liberalize international trade, including: 

• renewal of U.S. traditional trade negotiating authority (“fast track”); 

• the North American Free Trade Agreement (“NAFTA”); 

• the GATT Uruguay Round (UR) results; 

• the process of Asia-Pacific Economic Cooperation (“APEC”); and 

• negotiations to achieve a Free Trade Area of the Americas (“FTAA”). 



200 


At the same time, the revitalized, world class U.S. steel industry has confronted, 
and continues to face, long-standing, injurious and pervasive foreign unfair trade 
practices. Accordingly, AISI’s U.S. members have used antidumping (AD) and coun- 
tervailing duty (CVD) laws to counter: 

• closed foreign markets; 

• foreign private anticompetitive practices; 

• foreign dumping; and 

• foreign government trade-distorting subsidies. 

This experience has made clear that effective rules against dumping and trade- 
distorting subsidies are what makes trade liberalization possible. 

Need to Prevent Any Reopening of the WTO’s Antidumping Agreement and 
THE WTO’s Agreement on Subsidies and Countervailing Measures (SCM) 

With much of Asia and Latin America in recession and Russia in collapse, the 
steel industry in the United States and throughout North America experienced the 
greatest surge of injurious dumped and subsidized imports in its history in 1998. 
Unfortunately, America’s steel trade crisis continues in 1999 in the form of loss of 
orders, sales and revenue; severe price depression; cutbacks in production and oper- 
ating rates; lost jobs; sharp declines in profitability and liquidity; reduced invest- 
ment; depressed stock prices; and five bankruptcies. Therefore, AISI’s U.S. members 
have a particular interest in avoiding any efforts by foreign governments to use the 
WTO process to try to weaken further international and U.S. disciplines against 
trade-distorting practices. This is a goal strongly shared by AISI’s entire North 
American membership. 

The Committee on Ways and Means, in its 1997 markup of fast track bill legisla- 
tion, approved by voice vote — without dissent — a provision instructing U.S. nego- 
tiators to reject any agreement that would weaken existing disciplines against 
dumping and subsidies. The Committee stated that USTR: 

“shall — ... preserve the ability of the United States to enforce rigorously 
its trade laws, including the antidumping and countervailing duty laws, 
and avoid agreements which lessen the effectiveness of domestic and inter- 
national disciplines on unfair trade, especially dumping and subsidies. . ..” 

Unfortunately, a number of foreign governments have recently made clear that 
they would like to reopen these rules as a top priority — in order to weaken them. 
Therefore, the absolute top priority for the U.S. government should be to oppose any 
foreign government efforts to reopen the WTO Antidumping and SCM Agreements. 
Whatever WTO members do agree to add to the list of agreed post-1999 WTO nego- 
tiations, reopening the WTO Antidumping and SCM Agreements should not be on 
the list. 

• First, there have been no major problems with WTO members’ implementation 
of the new AD! CVD rules, so reopening these agreements is unnecessary. The only 
unresolved AD issue is circumvention and, while AISI supports adding further clar- 
ity to WTO rules and improving U.S. law in this area, this neither requires nor jus- 
tifies reopening the WTO Antidumping Agreement. On the issue of subsidies, there 
is a need for more notification by governments, but this does not require or justify 
reopening the SCM Agreement. Likewise, the only SCM issue in need of near-term 
attention is the pending expiration, unless extended by Ministerial decision, of the 
“greenlight” (Arts. 8 and 9) and “dark amber” (Art. 6.1) provisions, and this issue, 
too, neither requires nor justifies reopening the SCM Agreement. 

• Second, there has been little testing to date of the new AD! CVD rules. Many de- 
veloping countries have not even come into full compliance with the GATT Uruguay 
Round’s trade law changes. The world trading system has not had sufficient time 
to digest the UR’s changes to dumping and anti-subsidy rules. A period of stability 
and certainty is in order. Continued change and uncertainty in the WTO’s fair trade 
rules would actually impede world trade. 

• Third, the new AD /CVD rules are weaker than the pre-GATT Uruguay Round 
rules. In the antidumping area, as a result of the UR’s stricter standing require- 
ments, changes in how margins are calculated, higher de minimis standards and 
new “sunset” provision, U.S. cases will be (1) harder to bring, (2) more difficult to 
win, (3) provide less relief for a shorter period of time and (4) cost more money for 
injured American industries and workers. In the anti-subsidy area, while the new 
SCM Agreement has a somewhat expanded “red” list of prohibited subsidies and a 
new deep amber definition for “serious prejudice,” the U.S. in the UR lost the ability 
to pursue private subsidies, and also had to accept three new loopholes in the form 
of greenlights that make non-actionable subsidies for research and “pre-competitive 
development,” regional development and environmental equipment. 



201 


• Fourth, the new AD/CVD rules are not the problem in international trade. The 
real problems continue to be the trade-distorting practices of foreign countries 
(closed markets, cartel behavior, massive subsidies) that facilitate dumping and 
make it so necessary for the United States to maintain and enhance effective AD/ 
CVD rules. 

• Fifth, any reopening of the WTO Antidumping and SCM Agreements would only 
lead to a further weakening of AD! CVD rules. This, in turn, would further perpet- 
uate uneconomic excess capacity abroad and foreign trade-distorting practices. This 
would not serve the U.S. national economic interest. 

• Sixth, a highly divisive fight over reopening the Antidumping and SCM Agree- 
ments would make it all but impossible to achieve progress in key areas and conclude 
a new round of trade talks in a timely fashion. It could prevent progress on all of 
the important issues that comprise the agreed built-in agenda for the next round. 

In sum, the U.S. government should continue to resist by whatever means nec- 
essary any foreign government efforts to reopen these agreements. As AISI’s Presi- 
dent and CEO Andrew G. Sharkey, III said recently: 

“In the {President’s new| Action Plan {for steel), in testimony {on August 
6) before the House Ways and Means Committee and in many other set- 
tings, the resolve of the Administration is unmistakably strong. We plan to 
support our negotiators in every way possible, because our trading partners 
have made no secret of their intent to use the Seattle Round to cripple our 
defenses against unfair trade.” 

Need to Implement the GATT Uruguay Round’s Existing Rules 

AISI also supports U.S. efforts to ensure that the existing UR antidumping and 
anti-subsidy rules are effectively implemented, e.g., through continued monitoring 
by the WTO’s Committee on Antidumping. This, however, is very different from re- 
negotiating those rules. 

In addition, two Marrakesh Ministerial decisions have not yet been properly im- 
plemented. The first calls for an examination of the Antidumping Agreement stand- 
ard of review to determine broader application in WTO dispute settlement pro- 
ceedings. The second makes it clear that the WTO standard of review in AD dis- 
putes should apply equally to WTO panel reviews of CVD disputes. Both of these 
Ministerial decisions should be addressed and resolved as part of the pending WTO 
Dispute Settlement Understanding (DSU) review, and neither provides a reason to 
reopen the substantive WTO Antidumping or SCM Agreements. 

Need to Continue the Progress in WTO-Mandated Negotiations 

With respect to the concluded UR agreements where there was an express agree- 
ment to conduct further negotiations, AISI would hope that any negotiations in the 
services area would include a major focus on distribution services. Such a focus is 
warranted because distribution barriers are a main method used in other countries 
to limit imports of steel and other manufactured products. This, of course, impairs 
U.S. exports and diverts foreign exports of steel and steel-intensive products to the 
United States. 

Need to Reform the WTO’s Dispute Settlement Understanding 

The DSU review is to be concluded by year-end 1998 and, thus, technically is not 
part of the post-1999 negotiating agenda. AISI believes that U.S. support for con- 
tinuing WTO dispute settlement rules should be conditioned on additional improve- 
ments and reforms. Among key and necessary reforms would be: 

• to permit enhanced participation by private counsel “in the development of U.S. 
positions and in the preparation for consultations and dispute settlement pro- 
ceedings” as called for in the FY 1998 appropriations bill funding USTR; 

• to limit the WTO’s focus to legitimate dispute settlement functions, e.g., to pro- 
hibit WTO panels from reevaluating factual findings made by national authorities 
in CVD, as well as in AD, cases; and 

• to increase the fairness, transparency and openness of WTO dispute resolution 
decision making. 

In addition, AlSI’s U.S. members support continued U.S. efforts to: 

• defend sovereignty — the WTO must continue to provide flexibility to allow a 
country to maintain practices that violate the WTO as long as that country is will- 
ing to compensate injured trading partners or accept retaliation; 

• maintain Section 301 — the U.S. should keep stressing that, in areas where 
there are currently no WTO disciplines. Section 301 will continue to be available 
and will continue to be used to reduce and eliminate foreign market barriers; and 



202 


• establish a WTO oversight commission — one way to enhance the credibility of 
the WTO and its new DSU rules would be to enact the WTO judicial oversight bill 
sponsored in the last Congress by Representatives Benjamin Cardin (D-MD), Ralph 
Regula (R-OH) and others in the House and Senate. This WTO-consistent proposal 
would help ensure that, in future AD/CVD appeals, WTO panels do not exceed or 
abuse their authority. 

Need to Continue Progress on the Singapore Ministerial’s Work Program 

With respect to next steps on issues raised in the context of established WTO 
working groups, AISI believes that: 

• the current discussions in the trade and competition policy working group 
should conclude by year’s end; and 

• any report from this working group to the WTO General Council should omit 
any references to antidumping law, which is a totally extraneous issue. 

While the U.S. Administration deserves much credit for resisting foreign govern- 
ment efforts to weaken U.S. AD law by tr3dng to link antidumping to competition 
policy, the potential for WTO mischief making in this area has not diminished. In- 
deed, WTO Secretariat officials continue to engage in unfounded attacks on the 
GATT Article VI antidumping remedy through so-called “objective” studies on com- 
petition policy. 

Once again, the international trade problem is anticompetitive practices, not anti- 
dumping law. U.S. steel companies and employees continue to suffer serious damage 
from foreign steel cartel behavior. 

The WTO could provide useful insights into this problem if future work were to 
focus solely on the serious market access issues related to anticompetitive practices. 
Any future educational work in this area, however, would need to steer absolutely 
clear of any discussion or review of AD law and rules. It would need to confine itself 
to exploring the problem of private (and joint public-private) anticompetitive prac- 
tices and other trade restraints. It would need to look seriously at the damaging 
effects of closed markets and private anticompetitive practices abroad, including for- 
eign governments’ support for, and toleration of, cartel behavior. To that end, AISI’s 
U.S. members would also like to see an official U.S. government study on the prob- 
lem of foreign anticompetitive practices. 

Need to Enact WTO-Consistent U.S. Trade Law Reform 

WTO-consistent provisions to improve the effectiveness of U.S. trade laws are 
among the most important pieces of trade legislation that Congress could enact this 
year. Since the conclusion of the GATT Uruguay Round, which itself resulted in a 
net weakening of U.S. trade laws, America’s antidumping and countervailing duty 
laws have been further weakened by court decisions and sophisticated efforts at 
trade law evasion and circumvention. In addition, economic crises abroad have re- 
sulted in unprecedented, injurious surges of dumped, subsidized and disruptive im- 
ports, to which our existing trade laws have not provided adequate remedies. 

The United States is heading toward a record $300 billion merchandise trade def- 
icit in 1999. In some cases, U.S. trade laws make it more difficult to obtain relief 
from injurious imports than the WTO requires. As a result, public faith in free trade 
is eroding, and public support for new multilateral trade liberalization is being un- 
dermined. 

Therefore, as the United States prepares for a new round of multilateral trade 
negotiations, we must ensure that WTO-consistent U.S. trade laws (1) enhance U.S. 
leverage and credibility at the negotiating table and (2) reassure the American pub- 
lic that multilateral trade rules and national trade laws will be effectively enforced. 
The best way to achieve these goals is to enact WTO-consistent trade law strength- 
ening proposals of the kind contained in The Fair Trade Law Enhancement Act 
(H.R. 1505) and the Continued Dumping and Subsidy Offset Act (H.R. 842). 

Need to Pursue Other Key WTO Goals in the National Interest 

While ensuring that a new WTO round does not result in any weakening of AD/ 
CVD laws remains AISI’s top priority, we also support the following WTO-related 
objectives: 

• Need to Achieve Steel Tariff Elimination Globally. The GATT Uruguay Round 
already provides for a 10-year phase-out of U.S. steel tariffs. All normal U.S. duties 
on steel imports are scheduled to reach zero on January 1, 2004. Unfortunately, the 
GATT UR led to only some countries going to zero tariffs on steel. Many steel-pro- 
ducing and trading countries in Asia, Central Europe, Latin America and elsewhere 
did not agree to go to zero tariffs in the UR. Therefore, it is imperative in any new 



203 


WTO Round that governments work together to ensure that all steel producing and 
trading nations go to zero on steel tariffs as soon as possible. Achieving zero tariffs 
on steel by all major steel producing and trading nations is in the interest of both 
steel producers and consumers globally, and is needed to level the playing field in 
international steel trade. 

• Need to Pursue Simpler, More Transparent Government Procurement Rules. 
AISI’s U.S. members support enhanced foreign procurement opportunities for steel’s 
U.S. customers. They therefore support continued U.S. government efforts to: (1) 
simplify and improve the World Trade Organization (WTO) Government Procure- 
ment Agreement (GPA); (2) update the GPA to take account of the growing role of 
electronic commerce in the government procurement area; (3) encourage developing 
countries and other non-signatories to sign the GPA; (4) encourage non-signatories 
to assume equivalent commitments to promote transparency and open access to 
“covered entities"; and (5) encourage greater transparency and compliance by GPA 
signatories of the commitments they have already agreed to. 

• Need to Prevent Any Weakening of Steel Buy American Rules. At the same time, 
in any new negotiations in the government procurement area — whether under the 
auspices of the WTO, the FTAA or the Transatlantic Economic Partnership — AISTs 
U.S. members remain strongly opposed to any weakening of steel Buy America rules 
or any expansion of “covered entities” affecting steel. In particular, insofar as Con- 
gress only recently reaffirmed, once again, its strong support for leaving steel Buy 
American rules totally intact in the reauthorized ISTEA bill, there should be no 
weakening of Buy American preferences in the Highway Bill. The problem is, AISI’s 
U.S. members remain highly skeptical of expanding market access coverage at this 
time in areas affecting steel, because: (1) the U.S. has not achieved an 3 dhing close 
to equitable results in terms of currently covered entities; and (2) many foreign gov- 
ernments have not lived up to their existing WTO GPA obligations and commit- 
ments. If Buy American provisions were weakened without reciprocal access to for- 
eign markets, U.S. steel producers, workers, customers, the U.S. economy and U.S. 
trade policy would be the loser. At a time of steel trade crisis in the United States, 
it should not even need saying that, in any procurement-related negotiations in the 
near future, steel Buy American rules should be left fully intact. 

• Need to Ensure WTO Accessions for China and Russia on Commercially Viable 
Terms. AISI’s entire North American membership agrees that China (the world’s 
number one steel producing nation), Russia (the world’s number one steel exporting 
nation) and other countries in the Commonwealth of Independent States (CIS) 
should accede to the WTO — but only on commercially viable terms. They agree in 
particular that: (1) WTO members should be allowed to continue to apply non- 
market economy antidumping methodology until steel and other key sectors of the 
Chinese and CIS economies are no longer under government regulation or control; 
(2) China and the CIS countries should end subsidies now to the steel sector and 
adhere as soon as possible to the WTO Subsidies Code; (3) China should eliminate 
immediately all trading rights and other discriminatory barriers to steel imports; 
and (4) there should be a special safeguard in the Chinese and CIS accession proto- 
cols that enables other WTO members to address the possibility of import market 
disruption from China and the CIS. 

• Need to Be Cautious on the New Issue of Trade and the Environment. One “new” 
WTO issue is trade and the environment. On this issue, unlike some other segments 
of U.S. industry, AISI’s main concern is not that NAFTA-type environmental provi- 
sions might find their way into additional trade agreements. Rather, AISTs concern 
is that unilateral U.S. efforts to implement certain international environmental ac- 
cords could end up causing substantial harm to the trade and competitiveness posi- 
tion of U.S. manufacturers — without in any way solving the global environmental 
problems at hand. The steel industry’s most immediate concern in this regard is 
global climate change policy. Simply put, the goal of reducing the world’s “green- 
house” gasses and global warming will not be achieved if the U.S. and other devel- 
oped countries are forced to live under strict new environmental standards, while 
other major steel industries in the world are exempted as “developing” countries. 

Main Conclusions 

At a time when the U.S. steel industry continues to confront a trade crisis of his- 
toric proportions, AISI remains greatly concerned by ongoing foreign government ef- 
forts to reopen the current WTO dumping and anti-subsidy rules. Such a reopening 
would only further erode current remedies to unfair trade. If that were to occur, the 
support of steel and many other key U.S. industries for the WTO could turn to oppo- 
sition. Therefore, Congress should continue to oppose foreign government efforts to 
reopen and weaken WTO antidumping and anti-subsidy rules. 



204 


In response to this latest trade law weakening push by foreign governments, 
AISI’s U.S. member companies support: 

• more effective U.S. AD/CVD laws and enhanced Department of Commerce trade 
law enforcement; 

• an intensified commitment by the Administration that it will vigorously enforce 
U.S. trade law rights when they are challenged by foreign governments in the WTO; 
and 

• continued, close congressional oversight of WTO matters to ensure that the 
WTO Antidumping and SCM Agreements do not get reopened. 

AISI, on behalf of its U.S. members, appreciates this opportunity to provide a 
written statement to the Trade Subcommittee on U.S. objectives for the third WTO 
Ministerial Conference in Seattle and for a new round of WTO trade negotiations. 


Statement of Antonia Juhasz, Director, International Trade and Forests 

Program, American Lands Alliance, and Dr. Faith Campbell, Director, 

Invasive Species Program, American Lands Alliance 

American Lands Alliance 

“I think trade has divided us, and divided Americans outside this chamber, for 
too long. Somehow we have to find a common ground on which business and work- 
ers and environmentalists and farmers and government can stand together.” Presi- 
dent William Clinton, State of the Union Address, January 19, 1999 

We joined with millions of Americans on January 19, 1999 to hear President Clin- 
ton speak these words. We admit that we listened with some scepticism, but we also 
accepted the President at his word. As Directors of the International Trade and For- 
ests and Invasive Species Programs at American Lands Alliance, an organization 
that works with forest protection activists and organizations from across the coun- 
try, we looked forward to a year of increased participation in our government’s trade 
policy agenda. 

So, it was with considerable disappointment that we returned to work and learned 
in increasing detail of the Administration’s agenda for the third Ministerial meeting 
of the World Trade Organization. 

Rather than use this meeting as an opportunity to use trade policy to promote 
greater protections for the world’s embattled forests, the Administration is spear- 
heading efforts that will threaten forests, biodiversity and eco-systems. 

Given the multiple threats and abuses placed on the world’s dwindling native for- 
ests, now is not the time to advocate trade policies that threaten to increase these 
pressures. Rather, it is time to assess the impact of past international trade agree- 
ments on forests and other non-renewable resources in an attempt to protect these 
resources in the future. 

There are several elements of the agenda for the Ministerial meeting that could 
have a deleterious impact on forests. However, there are just three key issues that 
we would like to bring to the attention of the Subcommittee today: the Global Free 
Logging Agreement, the threat of invasive species invasion from the Sanitary and 
Ph 3 dosanitary Standards Agreement and the potential inclusion of investment provi- 
sions similar to the Multilateral Agreement on Investment. 

The “Global Free Logging Agreement” 

On February 11, 1999, less than one month after the State of Union Address, 
United States Trade Representative Charlene Barchefsky, stated that trade liberal- 
ization of forest products is a priority of the Administration and part of an “early 
harvest” agenda — negotiations that will occur prior to the Ministerial meeting so 
that a final agreement can be reached in November. The so called “Advanced Tariff 
Liberalization” (ATL) initiative would eliminate tariffs on all forest products by the 
year 2000 for developed countries and 2003 for developing countries. 

Tariff Elimination on Forest Products 

According to the American Forest and Paper Association, tariff elimination could 
generate three to four percent additional growth in consumption of forest products 
worldwide. 


1 “Forest Industry Leader Urges Worldwide Tariff Elimination,” American Forest and Paper 
Association, April 28, 1999. 



205 


This finding is troubling because increased consumption of forest products will 
lead to an increase in production. Increased production means increased logging — 
making the ATL a virtual “Global Free Logging Agreement.” Without the appro- 
priate environmental protections to ensure that logging takes place in unthreatened 
forests and will not cause environmental harm, increased logging will mean in- 
creased destruction of the world’s forests, biodiversity and eco-systems. 

Current logging practices have decimated the world’s forests. According to the 
World Resources Institute (WRI), nearly one-half of the world’s original forest cover 
is gone. Of the remaining original forests, most is severely degraded, while only 22 
percent remains as large tracts of relatively undisturbed primary or “frontier” for- 
ests. WRI and other organizations have named commercial logging as the greatest 
threat to frontier forests. According to World Wildlife Fund mapping projects, in 
North America, all but about five percent of the forests in the lower 48 states have 
been logged at least once. Following logging, replanted areas typically lack the bio- 
diversity and ecological functions present in the original forest. The World Con- 
servation Monitoring Center considers this type of habitat loss to be the biggest cur- 
rent threat to biodiversity. An increase in unsustainable logging practices by the 
ATL would exacerbate this already tenuous situation. 

In response to the concerns raised by environmental organizations and others, the 
Office of the U.S. Trade Representative has argued that tariff elimination is a win- 
win scenario for the environment and industry because the increased consumption 
it generates will be met by more efficient production.^ Unfortunately, the Adminis- 
tration has yet to cite evidence in support of this contention. 

Written testimony by Earthjustice Legal Defense Fund and Defenders of Wildlife ^ 
demonstrates the hollowness of the Administrations argument. First, the most eco- 
nomically efficient way to log a forest is to clear cut. Clear cutting also happens to 
be the most environmentally harmful method. Second, the organizations cite a U.S. 
Department of Commerce finding in a countervailing duty investigation of softwood 
lumber imports from Canada that as costs of producing timber decrease (in this case 
through decreasing stumpage rates), logging increases. The Administration can not 
have it both ways. 

The ATL would accelerate and expand a tariff schedule agreed to at the Uruguay 
Round of the WTO. Given the status of the world’s forests, there simply is not 
enough information available at this time to know exactly what the impact of accel- 
erated tariff elimination of all forest products world-wide would mean to endangered 
forests, biodiversity and fragile eco-systems. Therefore, until such information is 
available, and — if necessary — the appropriate environmental protections put into 
place, it is fool-hearty to rush forward with these negotiations. 

Non-Tariff Barriers to Trade: A Threat to Domestic Environmental Protections 

In addition to tariff elimination, it is possible that the WTO will consider non- 
tariff barriers to trade in the forest products sector. At least one nation, Japan, has 
proposed the inclusion of non-tariff barriers to trade such as export bans on raw logs 
for discussion at the Ministerial meeting.'^ 

The agreement on forest products was transferred to the WTO from the Asian Pa- 
cific Economic Cooperation (APEC). APEC is negotiating a similar agreement that 
includes the voluntary elimination of laws that are considered to be “unjustified” 
non-tariff barriers to trade. 

We find the potential negotiation of the elimination of non-tariff barriers to trade 
troubling because such negotiations amount to a virtual attack plan on the forest 
protection laws that American Lands Alliance cares about the most. 

A 1997 paper by the WTO’s Committee on Trade and the Environment® describes 
in detail non-tariff barriers to trade on forest products that could be considered in- 
consistent with WTO rules. These non-tariff barriers include export controls, includ- 
ing export taxes; restrictions and bans on certain products such as unprocessed logs; 
recycled content requirements on paper products; regulations specifying types of al- 
lowable packaging materials; percent of packaging material acceptable in relation 
to product size and weight; packaging reuse and recycling targets; recovery or re- 
turn schemes and certification and labeling of forest products. 


2 Letter to Paige Fischer and Jim Jontz from Don Phillips, Assistant U.S. Trade Representa- 
tive for Asia and the Pacific, July 27, 1998. 

^“Conditions of Competition in the U.S. Forest Products Trade.” Investigation 332-400, 
United States International Trade Commission. Hearing testimony submitted by Earthjustice 
Legal Defense Fund and Defenders of Wildlife, May 26, 1999. 

■^“Preparations for the 1999 Ministerial Conference.” Communication from Japan. July, 1999. 
5WT/CTEAV/67, 7 November 1997 



206 


We worry that negotiations of forest products at the WTO Ministerial and subse- 
quent round will attempt to treat legitimate conservation measures as “unjustified” 
non-tariff trade barriers. Numerous U.S. laws designed to protect forests, the envi- 
ronment and domestic workers could be challenged and potentially eliminated if 
they were no longer considered justified, and therefore illegal, barriers to trade. 

Examples of U.S. laws that could potentially be challenged by the WTO as illegal 
non-tariff barriers to trade include the 1990 Forest Resources Conservation and 
Shortage Relief Act that permanently banned the export of unprocessed logs from 
federal and most state lands. The law was created to protect domestic workers, mills 
and forests. 

President Clinton’s Executive Order 12995 which establishes specific recycled con- 
tent requirements for paper and paper products used by the federal government is 
a non-tariff barrier to trade that could be considered “unjustifiable” at the WTO. 
The same is true of laws enacted by every state except Alabama, Delaware and Wy- 
oming to purchase recycled products including 33 states with preferences for recy- 
cled materials generally, twenty states with separate purchasing preferences for re- 
cycled paper, and several addressing other recycled materials. 

Arizona, New York and Tennessee have passed eco-labeling or certification laws 
that limit the purchase of wood from tropical rainforests, only buying tropical tim- 
ber that is harvested using ecologically sound management practices. Such certifi- 
cation programs are gaining in popularity around the country and the world. When 
used by governments, these programs could be considered non-tariff barriers to 
trade subject to WTO disciplines. 

The vital environmental and labor protections created through these laws would 
be eliminated if these laws were challenged and removed as illegal non-tariff bar- 
riers to trade. 

The WTO has a perfect record when it comes to environmental protection laws: 
every environmental protection law that has been challenged at the WTO has fallen. 

Given this record, the Clinton Administration should be using the Ministerial 
meeting of the WTO to assess the threats currently faced by legitimate conservation 
laws at the WTO rather than discussing proposals that put such laws into even 
greater jeopardy. 


Administration Analysis of ATL 

Under growing pressure from environmental organizations and citizens to assess 
the environmental impacts of the proposed liberalization initiatives for forest prod- 
ucts at the WTO, the Administration has initiated a limited analysis of the potential 
“economic and environmental impacts” of the ATL. Unfortunately, this analysis falls 
well short of what would be necessary to provide an adequate basis for policy deci- 
sion-making. Specifically, the reference point for such an assessment must be the 
National Environmental Policy Act’s (NEPA) mandated procedures and methodolo- 
gies, as elaborated through regulations of the Council on Environmental Quality 
(CEQ). Because the analysis proposed by USTR and CEQ does not follow nor even 
come close to reflecting these guidelines, it does not provide for the appropriate 
depth, public participation nor evaluation of alternatives necessary to serve as a sat- 
isfactory source of information. 

American Lands finds the study to be inadequate for the following reasons: 

1. The time-frame is too short for adequate public input and for comple- 
tion of a comprehensive assessment. While the Federal Register requests “spe- 
cific information regarding, or empirical studies of, the economic and environmental 
impacts of past trade liberalization in this sector,” the thirty day comment period 
does not provide adequate time to compile this or other meaningful information. In 
addition, thirty days does not provide adequate time to notify the broader “non-belt- 
way” public of the request period such that they have to time to prepare a response. 
Finally, the time-frame for completion of the study (USTR and CEQ stated that the 
study would be completed in September®) is too short for a comprehensive analysis 
of hoth economic and environmental impacts. 

NEPA COMPARISON: the NEPA process specifies that no final decision will be 
made until at least 90 days after publication of a notice of a draft Environmental 
Impact Statement (EIS) and 30 days after publication of a final EIS. 

2. The scope of the analysis is too limited. The proposed analysis includes 
only tariff elimination and does not include non-tariff barriers to trade. As discussed 
above, it is most likely that the WTO discussions will include non-tariff measures. 
Non-tariff measures are a vital part of the answer to the study’s question of how 


USTR and CEQ briefing for NGOs on the ATL, June 3, 1999. 



207 


forest product trade liberalization efforts relate to “other U.S. government goals and 
objectives in the forest policy arena.” As listed above, there are many U.S. govern- 
ment policies intended to protect forests that could be considered non-tariff barriers 
to trade. The analysis is incomplete without an investigation in to this area. 

3. The proposed analysis does not include an exploration of alternatives, 
including the “no action” alternative. The analysis does not even consider 
the possibility of achieving the trade goal with an environmentally justifi- 
ahle alternative. Without a thorough investigation of alternatives to the 
ATL, the agreement appears to he a “fait accompli” and the analysis noth- 
ing more than a gesture to the environmental community rather than a 
meaningful process. 

NEPA COMPARISON: the NEPA EIS must include a comparison of the poten- 
tial environmental impacts of the proposed action to the impacts of alternatives (in- 
cluding no-action alternative) including appropriate mitigation measures. 

4. The analysis does not include a study of the state of the world’s forests 
today nor the adequacy of current forest protection laws. A comprehensive 
environmental assessment must take into account the environmental status of the 
natural resource in question and the laws intended to protect that resource. The 
proposed analysis, on the other hand, fails to ask the basic question “are the world’s 
forests able to sustain an ATL in forest products given current national and inter- 
national frameworks for forest conservation?” 

NEPA COMPARISON: the NEPA EIS must include a description of the affected 
environment and the environmental consequences — including direct and indirect ef- 
fects, possible conflicts with other federal, state and local policies governing the af- 
fected areas, impacts of alternatives and the impacts on depletable resources and 
on conservation. 

5. The concerns raised by other agencies and the public are not being in- 
vestigated. While the Federal Register notice states that previous testimony sub- 
mitted on this topic will be made a part of the record, it does not say that USTR 
and CEQ will respond to these comments nor the comments being requested in the 
current notice. There is also no explanation given as to how comments will be in- 
cluded in the process nor how the recommendations of the public will be rejected 
or accepted. Finally, nowhere does it say that an explanation will be provided as 
to why certain recommendations were rejected or accepted. 

NEPA COMPARISON: under NEPA guidelines, the government is required to 
assess and respond to public comments. In addition, the EIS must cover areas of 
controversy, including issues raised by agencies and by the public, and issues to be 
resolved (including alternatives). 

Each of the five points provided above would be addressed if the Administration 
had agreed to cease negotiation of forest product liberalization efforts at the WTO 
and begin an assessment consistent with NEPA disciplines. Unfortunately, the pro- 
posed analysis follows none of these guidelines and therefore will be an inadequate 
assessment on which to base policy decisions about the ATL or any other trade lib- 
eralization initiatives in the forest products sector. 

Public and Congressional Opposition 

On July 19, 1999, in a letter to United States Trade Representative Charlene 
Barshefsky, sixteen of the nations leading environmental organizations expressed 
their opposition to the forest product liberalization plans at the WTO. Groups as di- 
verse as the World Wildlife Fund, the Wilderness Society and Greenpeace wrote 
that the ATL “would not correct, and could very well compound, worldwide forest 
destruction.” They urged the Administration to “promptly suspend further pro- 
motion of the current U.S. position” and “begin development of an alternative trade 
policy that demonstrably enhances forest conservation and sustainable develop- 
ment.” 

On the topic of non-tariff barriers to trade, the groups “reject any forest products 
negotiations that threaten to treat legitimate conservation measures as illegal ‘non- 
tariff trade barriers.’” They urged the Administration to “make clear that it would 
vigorously oppose any negotiations that could lead to restrictions on legitimate third 
party certification and ecolabeling of forest products, or otherwise on the consumer’s 
right-to-know about the environmental conditions under which wood products are 
logged and produced.” 

On July 28, 1999, 48 bi-partisan Members of Congress wrote President Clinton 
demanding that he withdraw from negotiations of the Global Free Logging Agree- 
ment, saying that it would increase unsustainable logging practices, threaten do- 
mestic forest protection laws, and jeopardize the world’s remaining native forests. 



208 


The letter was spearheaded by George Miller (D-CA) and Merrill Cook (R-UT). 
House Minority Leader Richard Gephardt (D-MO) also signed the letter. 

The Representatives addressed the topic of non-tariff barriers by expressing their 
concern that the “Administration is negotiating non-tariff barriers in other fora and 
has not committed to rejecting such discussions at the WTO in the future.” 

Unfortunately, the Administration ignored these concerns and announced on July 
30, 1999, that the ATL remained on the agenda of the Administration for signing 
at the Ministerial in November. Furthermore, the Administration did not reject the 
negotiation of non-tariff barriers to trade at the Ministerial or in the subsequent 
round. 


Recommendation 

American Lands asks Subcommittee members to recommend that the Administra- 
tion support the removal of all discussions of forest product trade liberalization from 
the Ministerial meeting and subsequent round of the WTO. Rather, the Administra- 
tion should initiate a NEPA-style assessment of the impact of previous WTO trade 
agreements, and the potential impact of proposed WTO trade agreements, on forest 
protection and biodiversity. 

The SPS Agreement: Opening The Door to Invasive Species 

Scientists and conservationists are increasingly concerned that the World Trade 
Organization Agreement on the Application of Sanitary and Phytosanitary Stand- 
ards (SPS Agreement) will block the U.S. Department of Agriculture from imposing 
sufficiently effective phytosanitary safeguards to minimize the risk that harmful ex- 
otic or alien species will be introduced in the course of international trade. As now 
written, the SPS Agreement requires the U.S. Department of Agriculture (USDA) 
to justify its phytosanitary safeguards in risk assessments that demand far greater 
quantities of information, and in far greater detail, than scientists can provide. In 
the face of these demands, the USDA must either 

• adopt “provisional” regulations and expend scarce resources trying to obtain the 
missing information needed to make them final; or 

• play “Russian roulette” by choosing to apply phytosanitary regulations only to 
known pests — when the vast majority of potentially damaging organisms have not 
been identified by science. 

Furthermore, even when the USDA has sufficient information to designate par- 
ticular species of insect, nematode, fungal pathogen, or plant as a “quarantine pest,” 
the SPS Agreement still limits the types of measures that the USDA can enact to 
try to prevent those organisms’ introduction. Because the SPS Agreement forces the 
USDA to rely on resource-intensive and error-prone processes of inspection, detec- 
tion, and evaluation, it virtually guarantees that additional pests will be introduced. 

The result of the SPS Agreement’s misguided provisions is that American agri- 
culture, horticulture, and natural environment — and the taxpayer — will be exposed 
to greater damage than necessary resulting from the introduction of exotic pests and 
weeds. 


Summary of Losses Caused by Introduced Pests and Weeds 

According to Dr. David Pimentel and colleagues at Cornell University, introduced 
or exotic species cost the American economy more than $123 billion annually. Exotic 
pests and weeds subject to the SPS Agreement make up at least $80 billion of that 
total. Examples of exotic pests and weeds already wreaking havoc in the United 
States include Formosan termite, fire ant, gypsy moth, Melaleuca, water hyacinth, 
“Dutch” elm disease, pine shoot beetle, yellow starthistle, and giant reed. These and 
other exotic species have completely transformed the forests of the east and are de- 
stroying the ecological and economic value of grasslands and wetlands across the 
continent. 

Even greater losses could be caused by introduction of additional exotic species 
not yet established in America. Just two of the recent pest risk analyses completed 
by the USDA put potential losses at $94 billion. These analyses considered just a 
few species known to pose great risk to forests and related industries; pests threat- 
ening other resources would raise the cost considerably. Furthermore, ecologists as- 
sure us that many species that could devastate our ecosystems are at present com- 
pletely unknown to science or are “cryptic” — that is, since they are not considered 
to be pests in their native environments, their pest potential here has been under- 
estimated. We can predict that future losses could rise to several hundred billion 
dollars — but we cannot predict which introduced species will contribute most to such 
a nightmare. 



209 


How Exotic Species Reach America 

Exotic species reach America in the course of international trade. Most come in 
as unintended “hitchhikers” or “stowaways” — organisms that found homes in the 
commodity being traded, or in the packaging containing the commodity, in the bal- 
last water, even in or on the structures of the ships and planes themselves. Insects, 
fungal pathogens, weed seeds, brown tree snakes, even mammals have survived 
long-distance transport inside the holds of ships or planes. Once on our shores, the 
organism may escape into suitable habitats, become established, and start to repro- 
duce and spread. 

As America’s imports increase — according to the General Accounting Office, they 
have expanded by more than 50 percent just since 1990, so do the opportunities for 
hitchhiking organisms. Unfortunately, virtually all ship-based transport ranks as a 
high risk of introducing exotic species because both ballast water and solid wood 
packaging — the crates, pallets, etc., that contain many products, and the wood 
blocks (“dunnage”) placed between containers to prevent their shifting — provide 
suitable habitats for a myriad of species. If the United States is to protect itself 
from being overrun with exotic species and the hundreds of billions of dollars in as- 
sociated control costs and losses, it must impose stringent phytosanitary safeguards 
aimed at ballast water, wood packaging, a wide variety of commodities, and other 
“pathways” of introduction. 

Summary of Faults in the SPS Agreement 

A) The Right of a Country to Set its Own “Appropriate Level of Risk": 

The SPS Agreement explicitly allows a country to set its own “appropriate level 
of risk” or protection (Article 3.3). However, this right is circumscribed. First, the 
country must be consistent — that is, apply comparable levels of protection in com- 
parable situations (Article 5.5). To satisfy this requirement, countries must close 
any existing loopholes in “comparable” measures — both other phytosanitary meas- 
ures applied to imports and domestic measures intended to prevent the spread of 
“comparable” organisms within the country (or the absence of such measures). This 
step will be politically difficult, may interfere with interstate trade, and will demand 
expenditure of significant resources at a time of stringent budgetary limits. 

Second, the “appropriate level of protection” must be justified by risk assessments 
pointing to a specific — not a generalized — threat. However, scientists’ knowledge 
about the ten million or more species of insects, fungi, and disease pathogens living 
in our trading partners’ habitats is far too limited to enable them to predict which 
foreign species might cause devastating damage if introduced to a new ecosystem. 
For example, neither the chestnut blight nor the fungus which causes “Dutch” elm 
disease is considered to be a damaging pest in their native Asia. The more specific 
the information demanded by the SPS Agreement, the greater the number of poorly 
understood exotic organisms that will not qualify for exclusion — and the risk that 
some of those species will prove to be highly damaging pests once introduced. 

B) Risk Assessments 

The WTO Appellate Body has required that the risk assessment for phytosanitary 
measures be very specific. The types of species and impact-specific information de- 
manded just cannot be obtained for most potential phytosanitary pests. George Car- 
roll, President of the Mycological Society of America, has said: 

Current regulations are based in part on pest risk assessments ... However, 
most of the fungi that have caused devastating epidemics upon introduction 
to North America were previously unknown as significant pathogens and 
indeed were not significant pathogens in their native habitat. Today, it is 
estimated that 95% of fungal species in the world remain undescribed, let 
alone understood in terms of ecolo^cal function. We do not believe that pest 
risk assessments can adequately identify organisms which may cause se- 
vere damage in North America. 

America’s ecosystems will not be protected by phytosanitary measures targeted on 
the few individual species for which sufficient data exist to meet this standard. Yet, 
the SPS Agreement prohibits the USDA from acting to prevent the introduction of 
species that are not determined, in the risk assessment, to be “quarantine pests” 
under SPS standards — again, a decision dependent upon the error-prone process of 
evaluating the potential impacts of individual taxa. 

C) “Provisional” Measures Adopted Under the Terms of Article 5. 7 

The only way a country can escape the obligation to define the problem and its 
solution with such specificity is through adoption of “provisional” measures under 



210 


the terms of Article 5.7. A country’s right to adopt “provisional” measures is often 
said to be the Agreement’s acceptance of the “precautionary principle.” However, the 
text and a third decision by the Appellate Body make it clear that “provisional” 
measures are expected to be short-term and the exception rather than the rule. Fur- 
thermore, the country must be seeking the additional information — a task that will 
certainly consume scarce governmental resources and may be completely fruitless. 

As we said initially, the USDA has two choices: 

1) play Russian roulette — let in the thousands of taxa for which it lacks sufficient 
information to prepare an acceptable risk assessment — and hope that none of them 
turns out to be the bullet in the chamber, or 

2) issue numerous “provisional” regulations and waste scarce resources seeking 
additional information and reviewing its decisions. 

D) Pests and Weeds Already Present in the Country 

The SPS Agreement severely restricts the U.S.’ right to protect itself from contin- 
ued introduction of pests and weeds that are already present in the country. The 
SPS Agreement allows a country to erect phytosanitary barriers for pests already 
in the country only when: 

• the species is not widespread and an “official control program” targets the spe- 
cies; or 

• the newly introduced organism differs genetically from its relative in the United 
States in a way that demonstrates the potential to cause greater damage. 

At least 400 species of exotic insects and 500 species of alien plants already 
threaten natural ecosystems in the United States; additional pests and weeds 
threaten agriculture. Allowing more individual organisms belonging to these species 
into the country presents the following risks: the added numbers enable the species 
to reproduce more rapidly; the new imports may establish a population in an area 
not previously infested: and the organisms may introduce a genetic variety that is 
harder to control. 

Yet the U.S. lacks the resources to maintain “official control programs” for a sig- 
nificant number of these established pests and weeds — especially when the principal 
reason for doing so is not to improve control over the invader within our borders, 
but only to meet the conditions for preventing further introductions. 

Scientists cannot meet the second condition — analyzing the genetic makeup of 
these organisms and predicting that any differences may result in the species show- 
ing greater virulence or resistance to control — because they do not have sufficient 
information about the species’ genetic makeup. 

The Type of Phytosanitary Program the SPS Agreement Should Allow 

A truly “science-based” phytosanitary program should reflect the serious threat 
posed by exotic species to agriculture, horticulture, forestry and to the m 3 Tiad nat- 
ural ecosystems and biotic communities found from Alaska to Florida, Maine to Ha- 
waii. 

It should also reflect practical realities, including gaps in scientists’ knowledge 
about both species that inhabit our trading partners’ habitats and the vulnerability 
of American ecosystems; and limits on funding, control technologies, etc. that im- 
pede efforts to control introduced organisms once they are in the country. Indeed, 
biological invasions are usually irreversible given today’s level of scientific knowl- 
edge, limited funding, and the ever-rising number of pests that must be addressed. 
For this reason, scientists strongly recommend focusing efforts on preventing intro- 
ductions. 

It follows that a sound ph 3 dosanitary program should have as its premise the goal 
of keeping out — “excluding” — all exotic organisms that have not been evaluated and 
determined very unlikely to be invasive. 

In other words, “If in doubt, keep it out”; or “guilty until proven innocent” 

Exclusion is most effectively and efficiently done by utilizing the best technologies 
and reflations to ensure that each of the many introduction “pathways” will be as 
inhospitable to any insect, fungus, virus, weed, or other potential pest organism as 
is technically possible. This approach solves several problems; it: 

• reduces the burden on USDA port inspectors who otherwise must search mil- 
lions of shipments for tiny, even microscopic, organisms; and 

• reduces the risk that an error in identifying and assessing the potential impacts 
of an organism that is detected by inspectors will result in a decision to allow entry 
of a species that turns out to be highly damaging. 

Unfortunately, the SPS Agreement does not allow this sensible, science-based ap- 
proach. 



211 


Recommendation 

American Lands asks Subcommittee members to recommend that the Administra- 
tion seek amendment of the SPS Agreement so that the United States and other 
countries can institute effective phytosanitary safeguards to prevent irreversible 
damage to our environment and losses in the hundreds of millions of dollars. 

The Multilateral Agreement on Investment at The WTO 

We appreciate that the Administration’s proposed agenda for the Ministerial does 
not include negotiation of investment provisions such as those found in the Multilat- 
eral Agreement on Investment (MAI). However, because at least one negotiating 
body, the European Union, did include such discussions in their proposal, we ask 
that the U.S. government explicitly state its opposition to such negotiations at the 
Ministerial and the subsequent round. 

The MAI is an international economic agreement that was originally negotiated 
at the Organization for Economic Cooperation and Development (OECD). The MAI 
would make it easier for individual and corporate investors to move assets — whether 
money or production facilities — across international borders by limiting the ability 
of governments to regulate their activities. While negotiations of the MAI were 
scheduled for completion in May, 1998 at the OCED, overwhelming public and some 
governmental opposition forced the OECD to cease these negotiations. Since this 
time, WTO members such as the European Union, have suggested that MAI-like in- 
vestment provisions be included in the WTO Ministerial round negotiations. 

The inclusion of MAI-like investment provisions in the WTO would threaten forest 
protection laws across the United States and the world. 

The MAI: A Threat to Forests Everywhere 

The MAI would increase access to foreign markets to multinational timber compa- 
nies while at the same time limiting the ability of governments to regulate the ac- 
tivities of those companies. In fact, governments would be forced to grant foreign- 
owned companies special rights over domestic companies. 

WTO rules currently apply primarily to the movement of goods and services. If 
investment was included, WTO rules would be expanded to apply to the movement 
capital and production facilities, such as factories, around the world. 

These rules include: 

National Treatment (NT). NT requires countries to treat foreign investors and 
investments no less favorably than domestic ones. Under NT, governments can not 
favor domestic, locally owned timber companies (even if these companies are proven 
to operate the most sustainably) with tax breaks, special subsides or contract pref- 
erences; nor can governments reserve publicly owned forests for local economic use: 
foreign corporations must be given an equal right to bid for concessions. 

Most Favored Nation (MFN). MEN requires governments to treat all foreign 
countries and investors the same with respect to regulatory laws. Laws prohibited 
by MFN would include laws that restrict trade with specific foreign-owned compa- 
nies known for their unsound environmental production practices and laws that re- 
strict trade with companies that do business in countries with especially threatened 
forests. 

The MAI included the following provisions which could also be introduced at the 
WTO: _ 

Limitations on Performance Requirements (PR). PRs are laws that require 
investors to meet certain conditions if they want to establish an enterprise in a par- 
ticular location. Such laws were banned outright at the OECD, even if they did not 
discriminate against foreign investors. Therefore, laws designed to ensure that local 
communities benefit from the economic activity of foreign-owned timber companies 
could be banned. For example, requirements to: take a local partner, hire local peo- 
ple, make a specific level of investment — including local benefit or assistance pack- 
ages, or requiring the transfer of environmentally beneficial technology. 

A Ban on the Uncompensated Expropriation of Assets. The MAI required 
governments, when they deprive foreign investors of any portion of their property, 
to compensate the investors immediately and in full. Because this provision is de- 
fined so broadly, it has the effect of essentially threatening the ability of govern- 
ments to write any regulatory laws because these laws could be argued to reduce 
the value of an investment. For example, it could he argued that a ban on clear- 
cutting or other land use restrictions limits the ability of timber companies to get 
the full value of their investment and therefore is an “expropriation of their assets.” 
Under MAI rules, the company would have to be compensated for their “lost profits” 
by the government. 



212 


Investor-to State Dispute Resolution (ISDR). Currently, the WTO does not 
allow for ISDR. However, the member nations could agree to institute it at the 
WTO. Under ISDR, individual investors and corporations are given the right to en- 
force the MAI by suing national governments directly if they believe that their 
rights, as established by the MAI, have been violated. The implications are enor- 
mous. Rather than go through the “political filter” of governments suing govern- 
ments — as is the standard for all international trade agreements other than the 
North American Free Trade Agreement (NAFTA) — the only filter keeping corpora- 
tions from suing governments is the size of the corporations legal budget. Using the 
ISDR mechanism in NAFTA, a Canadian environmental and health law has been 
struck down and a California environmental and health law is the subject of a $1 
billion suit. 

A Ban on Restrictions on the Repatriation of Profits or the Movement of 
Capital. Under this provision, countries can not prevent an investor from moving 
profits from the operation or sale of a local enterprise to that investor’s home coun- 
try. Nor can countries delay or prohibit investors from moving any portion of their 
assets, including financial instruments like stocks or currency. Many experts blame 
the recent East Asian financial crisis on just this type of capital flow liberalization. 

Investment provisions at the WTO modeled after those in the MAI would force 
governments to abandon laws that protect forests and the environment in order to 
grant increased rights to foreign corporations. 

Recommendation 

American Lands asks Subcommittee members to recommend that the Administra- 
tion explicitly oppose the negotiation of MAI-like investment provisions at the WTO 
Ministerial meeting or the subsequent round. 

Conclusion 

Free trade in forest products is not like free trade in other areas. Unlike radishes, 
when you pick a 4000 year old Chilean Alerce tree out the ground, it is gone for 
ever, it will not grow back. Unlike aluminum cans, when you crush millions of life- 
forms as yet to be identified while clear-cutting a forest, they can not be recycled. 
Therefore, it is fool-hearty to proceed with agreements to increase trade in non-re- 
newable resources without in-depth analysis of the environmental consequences. 

American Lands would like to make four specific requests to the members of the Sub- 
committee for their recommendations to the Administration: 

1) The Administration should oppose all discussions of forest products trade liber- 
alization at the Ministerial meeting and subsequent round of the WTO. Rather, the 
Administration should initiate an assessment of the impact of previous WTO trade 
agreement, and the potential impact of proposed WTO trade agreements, on forest 
protection and biodiversity. This assessment should be conducted with the reference 
point being NEPA’s mandated procedures and methodologies, as elaborated through 
regulations of CEQ. 

2) The Administration should seek amendment of the SPS Agreement as defined 
in detail above such that the United States and other countries can institute effec- 
tive phytosanitary safeguards to prevent irreversible damage to our environment 
and losses in the hundreds of millions of dollars. 

3) The Administration should explicitly state its opposition to negotiations of MAI- 
like investment provisions at the Ministerial and subsequent round of negotiations 
of the WTO. 

4) The Administration should heed the demand reflected in a letter which this or- 
ganization helped draft and which has been signed by over 700 organizations world- 
wide demanding that the Ministerial meeting in November be an assessment round. 
The current Agreements of the GATT and WTO would be assessed for their impacts 
on the environment and other social and economic areas at such a round. This as- 
sessment must be conducted with the direct input of qualified experts from non-gov- 
ernmental organizations and institutions and in an open and transparent manner 

Thank you for the opportunity to address this Subcommittee in written testimony. 



213 


Statement of James Wm. Johnson, Jr., President, United States Beet Sugar 
Assoeiation, and Chairman, American Sugar Alliance 

Introduction 

Thank you for the opportunity to submit testimony in conjunction with this impor- 
tant hearing. 1 am the president of the United States Beet Sugar Association, which 
represents American sugarbeet processing companies. 1 am also honored to serve as 
chairman of the American Sugar Alliance (ASA). The ASA is the national coalition 
of growers, processors, and refiners of sugarbeets, sugarcane, and corn for sweet- 
ener. 

The ASA has long endorsed the goal of global free trade because U.S. sugar and 
corn sweetener producers are efficient by world standards and would welcome the 
opportunity to compete on a genuine level playing field. Until that free trade goal 
is achieved, however, the United States must retain at least the minimal sugar pol- 
icy now in place to prevent foreign subsidized, dump market sugar from unfairly 
displacing efficient American producers. This policy was substantially modified by 
Congress in the 1996 Farm Bill, but remains highly beneficial to American teix- 
payers and consumers. 

While the ASA supports the goal of free trade, we have serious concerns about 
past agreements and about the structure of future multilateral or regional trade 
agreements. Listed below are our specific recommendations regarding negotiations 
of the World Trade Organization, followed by some background on the United 
States’ role and standing in the world sugar economy and our evaluation of the ef- 
fects of past multilateral and regional trade agreements on the world sugar market 
and on our industry. 

U.S. agriculture is extremely vulnerable as we approach the next trade round. If 
we are reckless, we risk converting American agriculture into a Rust Belt. If we ne- 
gotiate carefully and rationally, however, there is enormous potential for responsible 
American producers to compete and prosper in a genuine free trade environment, 
free from the need for government intervention. 

Recommendations for Future WTO Negotiations 

The 1999 World Trade Organization (WTO) Ministerial will play a pivotal role in 
establishing the scope, parameters, and goal of the next multilateral trade round. 
Shaped by our experience and by the specific failures of past agreements, described 
later in this paper, the following are the ASA’s recommendations for the Ministerial. 

Compliance. 

Compliance with past agreements, in particular, the Uruguay Round Agreement 
(URA) of the WTO and the North American Free Trade Agreement (NAFTA), must 
be achieved before the United States forges any new agreements. The United States, 
and any other country that has surpassed its URA commitments, should be given 
credit for doing so before being required to make further cuts in the next trade 
round. 

2. Catch-up. 

The United States must not reduce its support for agricultural programs, particu- 
larly for import-sensitive crops such as sugar, any further until other countries have 
reduced their support to our level. 

3. Export subsidies ! STE’s. 

Elimination of export subsidies, the most trade distorting of all practices, and of 
state trading enterprises (STE’s), which were ignored previously, must be given top 
priority in the next trade round. 

4. Labor and environmental standards. 

The wide gap in labor and environmental standards between developed and devel- 
oping countries must be taken into account in the next trade round, to provide both 
incentives and penalties that ensure global standards rise to developed-country lev- 
els, rather than fall to developing-country levels. Nearly three-quarters of the 
world’s sugar is produced in developing countries. 



214 


5. Negotiating strategy. 

With regard to future tariff reductions, the traditional, flexible, “request/offer” 
type of negotiating strategy must be followed in the next trade round, rather than 
the rigid, across-the-board, formula approach that was used in the URA. This is the 
only way to recognize the enormous diversity, and varying sensitivities, among agri- 
cultural industries and commodity markets. 

Background on U.S. Sugar Industry, Policy 
Size and Competitiveness. 

Sugar is grown and processed in 17 states and 420,000 American jobs, in 40 
states, are dependent, directly or indirectly, on the production of sugar and corn 
sweeteners. The industry generates an estimated $26.2 billion in economic activity 
annually. A little more than half our sugar is produced from sugarbeets, the remain- 
der from sugarcane. More than half our caloric sweetener consumption is in the 
form of corn sweeteners. 

The United States is the world’s fourth largest sugar producer, trailing only 
Brazil, India, and China. The European Union (EU), taken collectively, is by far the 
world’s largest producing region. It benefits from massive production and export 
subsidy programs. 

Sugar is an essential food ingredient and the U.S. sugar producing industry is 
highly efficient, highly capitalized, and technologically advanced. It provides 260 
million Americans most of sugar they demand, in 45 different product specifications 
and with “just-in-time” delivery that saves grocers and manufacturers storage costs. 

Roughly 15-20% of U.S. sugar demand is fulfilled by duty-free imports from for- 
eign countries, making the U.S. one of the world’s largest sugar importers. Many 
of the 41 countries suppl 3 dng our sugar are developing economies with fragile de- 
mocracies and they depend heavily on sales to the United States, at prevailing U.S. 
prices, to cover their costs of production and generate foreign exchange revenues. 

Despite some of the world’s highest government-imposed costs for labor and envi- 
ronmental protections, U.S. sugar producers are among the world’s most efficient. 
According to a study released in 1997 by LMC International, of England, and cov- 
ering the 6-year period ending in 1994/95, American sugar producers rank 19th low- 
est in cost among 96 producing countries, most of which are developing countries. 
According to LMC, fully two-thirds of the world’s sugar is produced at a higher cost 
per pound than in the United States. 

During the last three years studied, 1992/93-94/95, the United States became the 
lowest cost beet sugar producer in the world. American corn sweetener producers 
are also the lowest cost of all caloric sweeteners in the world, and always have been 
the lowest cost producer of corn sweetener. 

Because of their efficiency, American sugar farmers would welcome the oppor- 
tunity to compete against foreign farmers on a level playing field, free of govern- 
ment subsidies and market intervention. Unfortunately, the extreme distortion of 
the world sugar market makes any such free trade competition impossible today. 

Unique Characteristics of the World Sugar Market 

There are a number of unique characteristics to the world sugar market, which 
trade negotiators must take into account in future multilateral deliberations. 

World Dump Market. 

More than 100 countries produce sugar and the governments of all these countries 
intervene in their sugar markets and industries in some way. These unfair trading 
practices have led to the distortion in the so-called “world market” for sugar, and 
to a disconnect between the cost of production and prices on the world sugar mar- 
ket, more aptly called a “dump market.” Indeed, for the period of 1984/85 through 
1994/95, the most recent period for which cost of production data are available, the 
world average cost of producing sugar is over 18 cents, while the world dump mar- 
ket price averaged barely half that — just a little more than 9 cents per pound raw 
value. 

Volatility. 

Furthermore, its dump nature makes sugar the world’s most volatile commodity 
market. Because it is a relatively thinly traded market, small shifts in supply or 
demand can cause huge changes in price. 

During the period 1965-95, the average deviation from trend for raw sugar prices 
was nearly 50 percent, more than double the average deviation for corn and almost 



215 


double that of wheat. Just in the past two decades, world sugar prices have soared 
above 60 cents per pound and plummeted below 3 cents per pound. 

Other Factors. 

Aside from the highly residual and volatile nature of the world sugar price, there 
are a number of factors that set sugar apart from other program commodities. These 
unique characteristics should be taken into account before sugar is lumped in with 
other commodities for across-the-board policy reforms. 

• Lack of Concentration. World grain exports are overwhelmingly dominated by 
a small number of developed countries, but sugar exports are far more dispersed, 
and dominated by developing countries. This makes the playing field among major 
grain exporters comparatively level and policy reform relatively less complicated 
than for sugar. 

The world wheat and corn markets, for example, are heavily dominated by a 
handful of developed-country exporters — the United States, the European Union, 
Australia, and Canada are four of the top five exporters of each. The top five ac- 
count for 96% of global corn exports and 91% of wheat exports. 

The top five sugar exporting countries, on the other hand, account for only two- 
thirds of global exports and three of these are developing countries. The top 19 
sugar exporters account for only 85% of the market, and 16 of these are developing 
countries. 

• Developing Country Dominance. Developing countries account for 73% of world 
sugar production, and 69% of hoth exports and imports. Developing countries were 
virtually ignored in the Uruguay Round of reductions in harriers to agricultural 
trade, and impose far lower costs on their producers for labor and environmental 
protections. 

• Grower ! Processor Interdependence. Grain, oilseed, and most other field-crop 
farmers harvest a product that can be sold for commercial use or stored without any 
further processing. Sugarbeet and sugarcane farmers harvest a product that is high- 
ly perishable and of no commercial value until the sugar has been extracted. Farm- 
ers cannot, therefore, grow beets or cane unless they either own, or have contracted 
with, a processing plant. Likewise, processors cannot function economically unless 
they have an optimal supply of beets or cane. This interdependence leaves the sugar 
industry far less flexible in responding to changes in the price of sugar or of com- 
peting crops. 

• Multi-Year Investment. The multimillion-dollar cost of constructing a beet or 
cane processing plant (approximately $300 million), the need for planting, culti- 
vating, and harvesting machinery that is unique to sugar, and the practice of ex- 
tracting several harvests from one planting of sugarcane, make beet or cane plant- 
ing an expensive, multiyear investment. These huge, long-term investments further 
reduce the sugar industry’s ability to make short-term adjustments to sudden eco- 
nomic changes. 

• High-Value Product. 

While the gross returns per acre of beets or cane tend to be significantly higher 
than for other crops, critics often ignore the high cost associated with growing these 
crops. Compared with growing wheat, for example, USDA statistics reveal the total 
economic cost of growing cane is nearly seven times higher, and beet is more than 
five times higher. With the additional cost for processing the beets and cane, sugar 
is really more of a high-value product than a field crop. 

• Inability to Hedge. The 1996 Freedom to Farm Bill made American farmers far 
more dependent on the marketplace. Growers of grains, oilseeds, cotton, and rice 
can reduce their vulnerability to market swings by hedging or forward contracting 
on a variety of futures markets for their commodities. There is no futures market 
for beets or cane. Farmers do not market their crop and can neither make, nor take, 
delivery of beet or cane sugar. The hedging or forward contracting opportunities 
exist only for the processors — the sellers of the sugar derived from the beets and 
cane. These marketing limitations make beet and cane farmers more vulnerable 
than other farmers to market swings. 

U.S. Sugar Industry’s Free Trade Goal 

Because of our competitiveness, with costs of production well below the world av- 
erage, the American Sugar Alliance supports the goal of genuine, global free trade 
in sugar. We cannot compete with foreign governments, but we are perfectly willing 
to compete with foreign farmers in a truly free trade environment. 

We were the first U.S. commodity group to endorse the goal of completely elimi- 
nating government barriers to trade at the outset of the Uruguay Round, in 1986. 



216 


We understand we are the first group to endorse this same goal prior to the start 
of the 1999 multilateral trade round. 

The ASA does not endorse the notion of free trade at any cost. The movement to- 
ward free trade must be made deliberately and rationally, to ensure fairness and 
to ensure that those of us who have a gloljal comparative advantage in sugar pro- 
duction are not disadvantaged by allowing distortions, exemptions, or delays for our 
foreign competitors, as we are experiencing under the current agreement. 

Sugar and the Uruguay Round Agreement 
Little Effect on World Sugar Policies. 

More than 100 countries produce sugar and all have some form of government 
intervention. Unfortunately, these policies were not significantly changed in the 
Uruguay Round Agreement (URA) of the WTO. 

The URA inadequately addressed, or ignored: 

• Compliance. Many countries have evaded or not yet even complied with their 
URA agricultural commitments. In sugar, for example, the EU has managed to iso- 
late most of its sugar export subsidy program from URA disciplines. The Philippines 
has yet to meet its requirements for increasing minimum access levels to its sugar 
market. 

It was revealed at a WTO Analysis and Information Exchange Group meeting 
Geneva in September 1998, nearly four years since the inception of the URA, that 
a mere 17 of the 132 member nations have fulfilled all their notification require- 
ments on domestic support, export subsidies, and market access. One must wonder 
how we can monitor compliance with WTO-mandated reductions in agricultural poli- 
cies when the vast majority of countries will not even acknowledge which policies 
they have in place. 

• Export Subsidies. The most distorting practice in world agricultural trade is 
the export subsidy. Export subsidies provide countries the mechanism to dispose of 
surpluses generated by high internal production subsidies. In the absence of export 
subsidies as a surplus-removal vehicle, countries would have to reduce their produc- 
tion supports. With export subsidies in place, countries can move surpluses into 
markets where they do not belong and depress market prices. Other countries are 
forced to respond with import barriers. In the world sugar market, subsidized ex- 
ports by the EU alone amount to about a fifth of all the sugar traded each year. 

The URA did not significantly reduce the amount of sugar sold globally with 
export subsidies. The agreement failed to reduce the European Union’s generous 
price support level and requires only a tiny potential drop in its substantial export 
subsidies. 

• State Trading Enterprises (STE’s). STE’s are quasi-governmental, or govern- 
ment-tolerated organizations that support domestic producers through a variety of 
monopolistic buyer or seller arrangements, marketing quotas, dual-pricing arrange- 
ments, and other strategies. These practices were ignored in the Uruguay Round, 
but are, unfortunately, common in the world sugar industry. Major producers such 
as Australia, Brazil, China, Cuba, and India have sugar STE’s, but were not re- 
quired to make any changes in the URA. 

• Developing-Country Producers. Developing countries, which represent nearly 
three-quarters of world sugar production and trade, have little or no labor and envi- 
ronmental standards for sugar farmers, have no minimum import access require- 
ments, and often have high import tariffs. Nonetheless, developing countries were 
put on a much slower track for reductions, or, in the case of the least developed 
countries, were exempted altogether from URA disciplines. 

• WTO Non-Members. Important sugar-producing and importing countries such 
as China and the former Soviet republics are not WTO members, and need to do 
nothing under the URA. Yet, these countries represent some 40% of global sugar 
imports and 20% of production. 

• Labor and Environmental Standards. The gap in government standards — and 
resulting producer costs — between developed and developing countries is well docu- 
mented and immense, but was ignored in the URA. In sugar, the gap is particularly 
pronounced because, while the EU and the U.S. are major players, production and 
exports are highly dominated by developing countries, especially in the cane sector. 

Social Standards Gap. 

The differences in labor and environmental standards between developed and de- 
veloping countries are wide. American sugar producers operate with the highest pos- 
sible regard for workers and the environment. But we should not be penalized in 
multilateral trade negotiations for providing these costly protections. Foreign coun- 
tries that do not provide such protections should not be rewarded. If we are at- 



217 


tempting to globalize our economy, we should also globalize our worker and environ- 
mental protection responsibilities. If markets are to be liberalized, standards must 
be harmonized. 

In the next trade round, access to developed countries should be conditioned on 
developing countries’ achievement and enforcement of higher labor and environ- 
mental standards. Such an incentive system could help ensure that the next trade 
round results in a race to the top, in protection of workers and the environment, 
rather than a race to the bottom. 

'Widely Varying Levels of Support. 

Unilateral reforms to U.S. agriculture policy in the 1996 Farm Bill far exceeded 
U.S. commitments made the year before in the Uruguay Round. Furthermore, devel- 
oping countries, which dominate world agricultural trade and particularly sugar 
trade, were subject to a slower pace of reductions, if any. 

As a result, the United States is way out in front of the rest of the world in re- 
moving its government from agriculture and has placed its farmers in a domestic 
free market situation. This gap makes American farmers uniquely vulnerable to 
continued subsidies by foreign competitors. 

It is key that American farmers not be penalized for attempting to lead the rest 
of the world toward free agricultural trade. American farmers must be given credit 
for the reforms they have endured. 

U.S. Sugar Surpasses URA Requirements. 

The United States is one of only about 25 countries that guarantees a portion of 
its sugar market to foreign producers and it has far surpassed its URA commitment 
on import access. The URA required a minimum access of 3-5% of domestic con- 
sumption. The United States accepted a sugar-import minimum that amounts to 
about 12% of consumption. In practice, U.S. imports in 1994/95 and 1995/96 aver- 
aged 24% — double the promise we made in the URA, and about six times the global 
URA minimum. 

All this sugar imported from 41 countries under the tariff-rate quota (TRQ) enters 
the United States at the U.S. price, and not at the world dump price. Virtually all 
this sugar enters duty free. Just five countries (Argentina, Australia, Brazil, Gabon, 
and Taiwan) that lack Generalized System of Preferences status pay a minuscule 
duty of 0.625 cents per pound. 

The United States calculated its above-quota tariff rate in the manner dictated 
by the URA. These tariff levels are totally WTO consistent, and are dropping by 
15% over the 6-year transition period, as we promised they would in the Uruguay 
Round. This duty is frozen in the year 2000 and must not be reduced further until 
foreign countries have complied with their URA requirements, as the U.S. has done. 

U.S. Sugar Policy Reforms. 

U.S. sugar policy was unilaterally and substantially reformed in the 1996 Farm 
Bill, far in excess of URA commitments. The key reforms: 1) Production controls 
(“marketing allotments”) were eliminated. 2) Government-provided non-recourse 
loans, or a government-guaranteed minimum price, are conditional and no longer 
guaranteed — unlike all other U.S. program commodities. This ensures long-standing 
Congressional intent that U.S. sugar policy be run at no cost to the U.S. Treasury. 
3) The minimum import level, already about four times the minimum required by 
the URA, was effectively raised another 20%. 4) Sugar producers’ burdensome and 
discriminatory marketing assessment tax was raised 25%. 5) A 1-cent per pound 
penalty was established to discourage government loan forfeitures. 6) The U.S. com- 
mitted to further support price reductions when other countries surpass their URA 
requirements, as the U.S. has done, and achieve levels equal to ours. 

The reformed sugar policy of the 1996 Farm Bill does retain the Secretary of Agri- 
culture’s ability to limit imports, and also provides a price support mechanism, 
though only when imports exceed 1.5 million short tons. The 1998/99 sugar import 
quota is already below that critical trigger level. 

Playing Field Lower, But Not More Level. 

The URA’s formula-based approach called for across-the-board percentage reduc- 
tions, regardless of the original level of price support, import barrier, or export sub- 
sidy. Countries with the most egregious barriers can maintain their advantage 
throughout the transition process. For example, if one country’s price support were 
40% higher than another’s, and both reduced by the URA-mandated 20%, the 40% 
advantage would remain in place — the playing field has been lowered, but not lev- 
eled. 



218 


Furthermore, the United States far surpassed its URA commitments, unilaterally 
dismantling its already minimal commodity program in the 1996 Farm Bill, while 
many other nations with higher levels of government intervention have yet to even 
minimally comply. This has tilted the playing field even further to the disadvantage 
of efficient American farmers. 

Formula Driven Trade Strategy. 

For the many reasons outlined above, the rigid, formula-driven, or one-size-fits- 
all, approach for trade concessions does not work for agriculture in general, or for 
sugar in particular. Pursuing this approach would: 1) Fail to reduce the gap in sup- 
ports between countries — lowering the plajdng field, but not leveling it; 2) Again 
give developing countries virtually a free ride; 3) Further diminish U.S. negotiating 
leverage, which was severely reduced through our unilateral concessions in the 1996 
Farm Bill. 

To date, U.S. agriculture has led the world in trade barrier reductions and we are 
disadvantaged as long as the rest of the world fails to follow our example. 

Special Import Safeguards. 

The URA did provide some special import safeguards for sugar in the event of a 
world price collapse. Such a price collapse has occurred — current world prices are 
at a 14-year low of less than 5 cents — and these price-triggered safeguards are prov- 
ing valuable to prevent dump market sugar from entering the U.S. market. These 
safeguards must be retained, and should be strengthened, in the next trade round. 

Sugar and the NAFTA 

The ASA is concerned that before the United States embarks on another multilat- 
eral trade round we must be cognizant of serious problems that remain with our 
primary regional trade agreement, the North American Free Trade Agreement 
(NAFTA). Evasion of NAFTA rules and violation of international trade rules by our 
North American trading partners have left many American sugar producers with a 
distrust of trade agreements and a serious reticence about entering into new ones. 

Canada. 

Sugar trade between the United States and Canada, which imports about 90% of 
its sugar needs, was essentially excluded from the NAFTA. U.S. -Canadian sugar 
trade is governed mainly by the U.S. -Canada Free Trade Agreement and by the 
WTO. 

Currently, entrepreneurs based in Canada are threatening the integrity of U.S. 
sugar policy by circumventing the tariff-rate quota with a new product referred to 
in the trade as “stuffed molasses” — a high-sugar product not currently included in 
U.S. sugar TRQ classifications. USDA has estimated imports of this product could 
add about 100,000 tons of non-quota sugar to the U.S. market per year. That 
amount could grow if this loophole is not closed, further harming U.S. sellers of re- 
fined sugar and possibly threatening the no-cost operation of U.S. policy. 

Mexico. 

Mexico had been a net importer of sugar for a number of years prior to the incep- 
tion of the NAFTA. Nonetheless, the NAFTA provided Mexico with more than three 
times its traditional access to the U.S. sugar market during the first six years, 35 
times its traditional access in years 7-14, and virtually unlimited access thereafter. 

These provisions were negotiated by the U.S. and Mexican governments and con- 
tained in President Clinton’s NAFTA submission to the U.S. Congress, which Con- 
gress approved in November 1993. 

The sugar provisions, as altered from the original NAFTA text, were critical to 
the narrow Congressional passage of the NAFTA. 

Nonetheless, Mexico is now undermining the integrity of the NAFTA by claiming 
the sugar provisions are somehow invalid. This questioning by Mexico has bred deep 
feelings of distrust in trade agreements among many American sugar producers. 

In addition, Mexico has not complied with a NAFTA requirement to phase out its 
tariffs on U.S. high-fructose corn syrup (HFCS). Instead, Mexico raised its tariffs 
on HFCS imports to levels approaching 100%. Mexico may also be violating inter- 
national trade rules by sanctioning a restraint of trade agreement among Mexican 
sugar producers and soft drink bottlers to slow the pace of substitution of HFCS 
for sugar in Mexican soft drinks. (The ASA has filed a paper with USTR on this 
subject, “Initiation of Section 302 Investigation on Mexican Practices Affecting High 
Fructose Corn Syrup,” June 19, 1998.) 



219 


Statement of the American Textile Manufacturers Institute (ATMI) 

ATMI’s member companies range from small, specialized family-owned enter- 
prises to diversified, multi-billion dollar public corporations. They and ATMI believe 
that United States negotiating objectives in the upcoming World Trade Organization 
(WTO) Seattle Ministerial meeting and subsequent “Millennium Round” should be 
focused on completing the job that was begun but not finished during the Uruguay 
Round negotiations. Full stop. 

Key objectives of the Uruguay Round, as is well known, were to bring inter- 
national trade in services, agriculture and textiles/apparel under GATT (the pre- 
cursor of the WTO) disciplines and to forge international agreement on measures 
granting intellectual property protection. Negotiations to achieve these highly, 
worthwhile ends were scheduled to last four years and no more. Finally, after seven 
years, only one of these objectives was realized: that with respect to textiles/apparel. 
In services, agriculture and intellectual property, only ineffectual half measures and 
agreement to continue negotiations as part of a “built-in agenda” in these sectors 
were adopted. The Uruguay Round, though resulting in nearly a thousand pages of 
text ratified on April 15, 1994, remains an unfinished work. 

With regard to trade in textiles and apparel, profoundly far-reaching decisions 
were taken in the Uruguay Round. Agreement was reached to gradually phase out 
quantitative restraints on imports of textiles and apparel which were maintained 
since 1974 pursuant to the GATT-sanctioned International Arrangement Regarding 
Trade in Textiles (the “MFA”). All such restraints are to be gradually phased out 
over a ten-year “transition period” and completely eliminated as from January 1, 
2005. It is difficult to overstate the magnitude of this concession by the United 
States and the other textile/apparel importing countries. In dollar terms, it is prob- 
ably worth more to the exporting countries than all the other Uruguay Round 
Agreements. Combine, in addition, other concessions were made and gifts bestowed 
on the exporting countries in the form of ever higher annual growth rates for those 
restraints which do remain in place until 2005 and greatly increased “flexibility” 
provisions which allow countries to exceed the annual limits to which they agreed 
until 2005. As a result of these measures, U.S. imports of textiles and apparel, not 
including imports from free trade partners Canada, Mexico and Israel, increased 
$13.3 billion or 36.5 percent in just the four years since the Uruguay Round Agree- 
ments went into effect (1995) through last year. 

And, to further liberalize its contribution to world trade, the United States agreed 
to tariff cuts on essentially all textile and apparel products. 

It is safe to say that no other sector of U.S. industry was required to make as 
many concessions in the Uruguay Round Agreements as the domestic textile and ap- 
parel industries. But there was supposed to be at least partial recompense in the 
form of market opening initiatives by the exporting countries who, for two genera- 
tions, have kept their domestic markets closed to foreign competition* while cheer- 
fully exporting over $100 billion worth of textiles and apparel annually (1997). In- 
deed, Article 1 of the Uruguay Round Agreement on Textiles and Clothing (ATC) 
states “Members should allow for . . . increased competition in their markets.” This 
is reinforced by language in Article 7: “. . . all (emphasis added) Members shall 
take such actions as may be necessary to abide by GATT 1994 rules and disciplines 
so as to: 

a) achieve improved access to markets for textile and clothing products. . .” 

There can be no question but that the United States has fulfilled not only the 
spirit, but the letter of this requirement (and has a $13.3 billion increase in textile 
and apparel imports to prove it). Most regrettably, however, many of the large tex- 
tile and apparel exporting nations have ignored their commitments under the Agree- 
ment and have utterly failed to provide meaningful, real market access. (In this con- 
text, Pakistan’s removal of knitted ski suits from its list of banned imports is not 
meaningful market access). A list of import barriers still maintained by the non- 
compliant exporting countries and the results thereof are attached as Exhibits A & 
B. 

Until the major textile and apparel exporting nations provide a degree of access 
to their domestic markets comparable to what the United States has provided, no 
further concessions should be made by the U.S. The United States’ negotiating ob- 


* Except, of course, Hong Kong and Singapore, which somehow manage to export increasing 
quantities of textile products despite rapidly declining employment in the sector. It is possible 
that the openness of their markets plays a role in the growth of their exports by facilitating 
illegal transshipments. 



220 


jective in the Millennium Round should be, clearly and simply, to require these re- 
calcitrant exporting nations to abide by the ATC — five years after the fact — and pro- 
vide real access to their domestic markets. Should they fail to do so, the United 
States should then move to deny them further trade liberalizing elements (Article 
2) of the ATC. What the United States should not do, what it must not do, in the 
Millennium Round, is to agree to further reduce U.S. apparel and textile tariffs. Not 
only would doing so damage U.S. production and investment and destroy U.S. tex- 
tile jobs, any further tariff cuts would also undermine the preferential access to the 
U.S. which Mexico, Canada, and Israel enjoy under our free trade agreements, as 
well as any future benefits which may be realized under CBI enhancement legisla- 
tion. 


Exhibit A 

Balance of Trade in Textiles and Apparel 

Billion U.S. $—1997 


India 

Pakistan 

Indonesia 

Thailand 

Malaysia 

Philippines 

Egypt 

Neg: neglibile; not reported 

a. ) 1996 

b. ) nearly all textiles imported into export processing zones. 
Source. World Trade Organization. 


M 9.153 

Neg. 

6.399 

Neg. 

5.159 

<'=■) 1.152 

5.695 

<b) 1.249 

3.616 

(b) 1.210 

2.590 

('=■>1.175 

.792 

(1=-) .300 



221 


ExhbtB 


Avorege [ar’tson ioxtilc and Appa*‘o‘ 
Products * 

ArDontins 

40% * 50% 

ASEAN"* 

20% - 40% 

Braza 

40% -100% 

China 

25% -100% 

EflVPt 

25% - 60% 

India 

60% - 70% 

Japan 

7%-21% 

Pakistan 

40% - 65% 

South Africa 

42% - 1 00% 

United States*** (ss a basalina) 

16% 


101*3 U.S. Textile an 
Balance (i 

i Apparel Trade 
^ Mill 

Arcientina 1 

54 

ASEAN"* 

-7,100 

Brazil 

3 

China 

- 5.800 

Eavpt 

-460 

India 

-2,300 

Japan 

483 

Pakistan 

-1,400 

South Africa 

-66 



iVgentina 

Difficult and cumbersome c^fficate of origin rules; long delays at customs: 
difficulties dealina w/customs officials. 

ASEAN 

Some problems w/customs agendes in some countries mentioned: delays, 
art>ifr3ry valuations, cumb^some doc^maitation requirements. Numerous 
export and domestic industry subsidies. 

Brazil 

Difficult import licensing procedures; valuation problems when dealing with 
BrazSian customs 

China 

Non-transparent customs valuation procedures - use of unofficial reference 
price lists; importing of textile products restricted to foreign trading 
companies (FTC) which are also producers of similar products; distribution 
channels dominated by state cxinfrolled enterprises; discriminatory 
technical/Quaiitv testina rules. Export and domestic industry subsidies. 

Egypt 

Complex and excessive customs rules and procedures; arbitrary customs 
valuations: time consuming customs clearance procedures; bans on 
importation of appard and some textile producte; excessive technical 
certification requirements; difficult, costly marking requirements for textile 
products. Export and domestic industry subsidies. 

India 

Bans and/or restrictiems on the importatiCHi of most textile and all apparel 
products; discriminatory and non-fransparent licensing procedires; complex, 
difficult and time consuming customs clearance procedures; extremely 
difficult and costly marking rec^irements. Numerous export and domestic 
uidustry subsidies. 

Japan 

Complex technical barriers (quality, certification and labeling requiremente). 
Distribution system gives preferences to Japanese companies. 

Pakistan 

Textile and apparel products cg\ restricted import lists; export subsidies for 
domestic suppliers (part, cotton subsidies); complex and time consuming 
customs procedures. 

South Africa 

Arbitrary customs valuations. 

United States (as a 

baseline) 

Quota system in place (10%of quotas fill^ In 1998). NOTE: U.S. will not 
haveapynon-tariffban'iersaf^rJan. 1, 2005, consistent the Agreameni 
on TextHes and Clothing of the WTO. 


*lriclucies taxes, fses and other misc. enlarges for imported products. 

"Average tariff rates for Philippines, Thailand, Indonesia and Malaysia. Country averages: Thailand (25% - 50%). 

Indonesia (10% '30%), Philippines {10%-20%). Malaysia (20%- 40%). 

‘"Department erf Commerca 

Sources: “1999 National Trade Esfmate Report on Foreign Trade Barriers,” USTR; “Market Access Study to Idenfify Trade Barriers 
Affecting the EU Textiles Industry in Certain Third Country Markets," EU Commission, 1999; "The Market for U.S. Cotton Textile and 
A^)parel Products in India," Economic Consulting Sarviras, 1998; “TheMarket for U.S. Cotton Textile Prcsducts in indonesia," 
Ecoixamic Consul^ng Services, 1998; “The f^talcet for U.S. Cotton Te>®e Producte in the Philippines," EcorKsnic Consulting 
Services, 1998: Werner infotex Trade Database. 


statement of Association of International Automobile Manufacturers, Inc., 

Arlington, Virginia 

The Association of International Automobile Manufacturers, Inc. (AIAM), is the 
trade association representing U.S. subsidiaries of international automobile compa- 
nies doing business in the United States. Member companies distribute passenger 
cars, light trucks, and multipurpose passenger vehicles in this country and export 
them outside the United States. Nearly two-thirds of the vehicles they distribute 
here are manufactured in the New American Plants. International automakers sup- 
port American jobs in manufacturing, supplier industries, ports, distribution cen- 
ters, company headquarters, research and development centers, and automobile 
dealerships. AIAM also represents manufacturers of tires and other original equip- 
ment with production facilities in the United States and abroad. AIAM submits this 





222 


written statement for record of the hearing held by the Subcommittee on Trade on 
August 5, 1999, on the subject of U.S. Negotiating Objectives for the WTO Seattle 
Ministerial Meeting. 

1. Reduction of Tariffs on Motor Vehicles and Parts 

The rates of duty on passenger vehicles exported to the United States, the Europe 
Union, Japan and Korea now generally range from zero to 10 percent. However, in 
many countries the rate is 20, 30 or even 40 percent. Rates of duty on vehicle parts 
vary widely and in many cases are unnecessarily high. Automobile manufacturing 
is now a global industry which has experienced dramatic restructuring in recent 
years. The high costs of research, engineering, manufacturing technology, and mar- 
keting, among other factors, have influenced the industry to become truly inter- 
national, with worldwide companies that source parts from across the globe and as- 
semble vehicles in many countries. The notion of a national car or a strictly domes- 
tic automobile manufacturing industry does not square with modern economic re- 
ality. Protecting a national industry that is not competitive does little good for the 
citizens of any country. In the near term, at least for the developed world, progress 
toward a zero duty rate would be an excellent goal for the new WTO round. It would 
encourage competition and lead to lower prices, higher quality, and wider consumer 
choice. For less developed countries, such a goal may take longer to achieve, but it 
should nonetheless be an objective advanced by the WTO. 

2. U.S. Light Truck Tariff 

A particularly severe and unjustifiable barrier to trade is the 25% ad valorem 
duty that the United States imposes upon light trucks. This duty is an obsolete rem- 
nant of the so-called Chicken War between the United States and then-European 
Economic Community in the early 1960’s. It has no economic justification and re- 
stricts trade unnecessarily. 

This duty has been the subject of long-standing controversy and political debate. 
It has generated strong feelings within the United States and intense discussions 
with our trading partners. Abolishing the 26 percent duty should be the long-term 
goal of the United States. In the short term, action by the United States to reduce 
it to a level such as 4 percent, which is now the duty on trucks between five and 
twenty metric tons in gross vehicle weight, would be a very positive step that would 
serve U.S. interests. It would lower consumer costs and stimulate competition. Light 
trucks have become extremely popular in the United States. For many families, they 
fill the role of a second car. American consumers would benefit significantly from 
the increased competition and lower prices that should result from eliminating the 
Chicken War tariff. 

This anachronism is an example of the lasting negative effects of retaliatory tar- 
iffs. While the United States may wish to accomplish a tariff reduction in the con- 
text of bilateral or multilateral concessions, U.S. negotiators will have to take some 
initiative for American consumers to gain this benefit. That is because the cir- 
cumstances and interested parties involved have changed since 1963. The variable 
levy imposed by the EEC on imports of frozen poultry from the United States (an 
effective embargo of such imports) has been eliminated. Changes have also taken 
place in the structure and locations of light truck manufacturing. What has not 
changed are the artificially higher prices paid by American consumers for these pop- 
ular vehicles. 


3. Technical Barriers to Trade 

Article II of the Agreement on Technical Barriers to Trade (Agreement) lays down 
certain basic principles concerning the use of technical regulations. Eor example, 
such regulations must satisfy the principle of most-favored-nation treatment. They 
must conform as much as possible to international standards when such standards 
exist. They must abide by the principle of transparency, so that other countries may 
readily become acquainted with them. 

Perhaps most importantly, the Agreement provides that technical regulations are 
not to be prepared, adopted, or applied with a view to, or with the effect of, creating 
unnecessary obstacles to international trade. Technical regulations shall therefore 
not be more trade-restrictive than necessary to fulfill a legitimate objective, taking 
account of the risks non-fulfillment would create. 

Especially if tariffs on motor vehicles are to be further reduced or eliminated, 
AIAM urges that special attention be paid to the technical regulations in the auto- 
motive sector. U.S. exports of motor vehicles are increasing, and it is therefore im- 



223 


portant that they encounter no unjustifiable non-tariff barriers like protectionist 
technical regulations. 

If such regulations are identified, their elimination should be a condition of the 
U.S. willingness to reduce or eliminate its tariffs on motor vehicles. At the very 
least, such regulations should be amended to conform to international standards. 

4. Add and CVD — Causation 

At present, both U.S. and international laws provide that the imposition of anti- 
dumping (ADD) and countervailing duties (CVD) requires a determination that the 
dumped or subsidized imports are causing material injury or the threat of such in- 
jury to a domestic industry. But neither U.S. nor international law specifies the de- 
gree of causation that must be found to justify the imposition of ADD or CVD. 

The pertinent U.S. law is the Tariff Act of 1930, as amended. Section 731(2), in 
the case of ADD (19 U.S.C. Sec.l673(2)), and Section 701(a)(2) in the case of CVD 
(19 U.S.C. Sec. 1621(a)(2)), both provide that the U.S. International Trade Commis- 
sion (ITC) shall determine whether a U.S. industry is materially injured or threat- 
ened with material injury (by reason of imports) of the merchandise in question. 
Likewise, Article 3.5 of the Agreement on Implementation of Article VI (ADD Agree- 
ment) and Article 15.5 of the Agreement on Subsidies and Countervailing Measures 
(CVD Agreement) both provide that,”It must be demonstrated that the dumped [or 
subsidized] imports are, through the effects of dumping [or subsidies], causing in- 
jury within the meaning of the Agreement.” 

The absence of a specification of the degree of causality has allowed the ITC to 
take one of two approaches. The first is not to address the issue and simply assume 
that the test of causation is met. The second is to address the issue but dilute the 
test so that any causal connection is deemed sufficient. In either case, the test of 
causality is rendered insignificant, thereby allowing the imposition of ADD and CVD 
without objective justification. 

The result of doing so is, at one and the same time, to give the domestic industry 
a remedy it does not need and to impose upon consumers a measure that unneces- 
sarily hurts them. The ADD and CVD laws thereby become contrary to the national 
interest, since the costs are not offset by any benefits. 

Accordingly, AIAM proposes that both the U.S. laws and the international agree- 
ments be amended to provide that the dumped or subsidized imports must be a 
cause greater than any other cause of material injury or the threat thereof to the 
domestic industry. If one or more causes are each greater than the dumped or sub- 
sidized imports, imposing ADD or CVD is not justified, since they will not address 
the more significant cause or causes of the domestic industry’s injury. 

5. Agreement on Safeguards 

The Agreement on Safeguards (“SG Agreement”) should be amended to establish 
that, in order to justify the imposition of safeguard measures, increased imports 
must be a “substantial cause” of serious injury or threat. “Substantial cause” should 
be defined to mean a cause that is important and not less than any other cause. 
Such an amendment would be consistent with the nature and purpose of the SG 
Agreement, and would make the SG Agreement consistent with U.S. law. 

The SG Agreement sets forth the rules for applying safeguard measures pursuant 
to Article XIX of GATT 1994. Safeguard measures are “emergency” actions that per- 
mit WTO members to suspend WTO concessions in cases in which increased imports 
of particular products are causing or threatening to cause serious injury to the im- 
porting Member’s domestic industry. Such safeguard measures can take the form of 
quantitative import restrictions or of duty increases to higher-than-bound rates. 

Since safeguard measures are exceptions to WTO negotiated concessions, they 
should only be taken in extraordinary circumstances. This is reflected in part in the 
current requirements of the SG Agreement that there be increased imports that 
cause or threaten “serious injury.” The SG Agreement defines “serious injury” as 
significant impairment in the position of a domestic industry. “Threat of serious in- 
jury” is threat that is clearly imminent as shown by facts, and not based on mere 
allegation, conjecture or remote possibility. Safeguard measures are not to be adopt- 
ed lightly, since they are exceptions to the general rule of trade liberalization that 
form the basis of the WTO. 

The current causation standard in the SG Agreement, however, is inconsistent 
with the exceptional nature of safeguard provisions. The SG Agreement only re- 
quires that there be a causal link between serious injury and imports, and that in- 
jury caused by other factors should not be attributed to imports. The SG Agreement 
would, therefore, apparently permit the imposition of extraordinary emergency 
measures when increased imports may only be a cause, however insignificant, of in- 



224 


jury. It could be argued that the latter provision — that injury caused by other fac- 
tors should not be attributed to imports — is meant to imply that imports have to 
be more than an insignificant cause of serious injury to justify safeguard measures. 
Such a reading would be consistent with the purpose of the SG Agreement. A literal 
reading of this provision, however, does not support this interpretation. 

The U.S. version of the SG Agreement is section 201 of the Trade Act of 1974, 
as amended. Section 201 adopts a standard for causation that is consistent with the 
extraordinary, emergency nature of section 201. Section 201 requires that increased 
imports be a “substantial cause” of serious injury or of threat thereof “Substantial 
cause” is defined by section 201 as a cause that is both important and not less than 
any other cause. 

This is a causation standard that makes sense and is consistent with the purpose 
of the SG Agreement. In the United States, this causation standard has not pre- 
vented section 201 relief when it was warranted. It has however, prevented the im- 
position of anti-import measures when causes other than imports were more impor- 
tant causes of injury than imports. In the 1980 automobile section 201 investigation, 
for instance, it would have been counterproductive to impose import restraints on 
automobiles when the more important cause of injury was the recession taking place 
at that time. To do otherwise would have been to scapegoat imports, undermine 
GATT commitments, hurt both consumers and the economy, and do little to help 
the domestic industry. 

In the next WTO round, the U.S. should push to change the causation standard 
of the SG Agreement to require that imports be a “substantial cause” of serious in- 
jury or threat, and that “substantial cause” be defined to mean a cause which is 
important and not less than any other cause. 

6. Dispute Settlement Understanding 

There are several ways in which the WTO’s dispute settlement understanding can 
be improved. 

Transparency: 

The U.S. should encourage WTO members to take steps to ensure that the WTO 
decision-making process is open and transparent. First, all submissions made in 
connection with a dispute that do not contain confidential information should be 
made available publicly when they are filed. This includes submissions and reports 
of the parties and any experts selected by the dispute settlement panel, as well as 
requests for the formation of a panel and notices of appeal. Second, public versions 
of confidential reports and submissions should be submitted and made available to 
the public within a reasonable time — no more than 2 days — after the confidential 
reports and submissions are filed. There should be a strong presumption against re- 
dacting information in the public version, and confidential information should only 
be redacted if it meets certain narrowly defined criteria. Third, decisions of the Dis- 
pute Settlement Panels should be made available to the public at the same time 
they are released to the parties to a dispute. Finally, hearings before dispute settle- 
ment panels and before the appellate body should be open to the public, unless a 
request is made by a party for in camera treatment of certain portions of the pro- 
ceeding, due to the confidential nature of the information being discussed. 

Public Participation: 

The DSB should encourage and accept amicus curiae briefs from the public in dis- 
pute settlement proceedings, as permitted by Article 13.2 (which provides that the 
DSB may seek information from non-parties to assist in the settlement of disputes). 
This may be of particular significance in cases involving complex technologies and 
issues. Further, upon request by an NGO amicus party, the dispute settlement pan- 
els and appellate hody should permit oral presentations at hearings by that party 
or by their attorneys. Finally, the DSB should allow parties, including NGO amicus 
parties, at least 30 days in which to comment on any reports submitted by experts 
selected by the WTO panel. 

7. Rules on Country of Origin 

The Agreement on Rules of Origin (Agreement) begins to lay down the rules of 
general application for determining the country of origin of goods that are traded 
among countries. The Agreement further establishes a Committee and a Technical 
Committee on Rules of Origin, charged with the task of formulating a definitive set 
of rules. These Committees have not yet finished their work. 

Article 9 of the Agreement sets forth certain principles to guide the work 
of the Committees. The most important principle is that 



225 


rules of origin should provide for the country to be determined as the origin of 
a particular good to be either the country where the good has been wholly obtained 
or, where more than one country is concerned in the production of the good, the 
country where the last substantial transformation has been carried out. 

The question is how “substantial transformation” should be defined. Article 2 sets 
forth three possible criteria. The first is a change in tariff classification. The second 
is the addition of value added. The third is the specification of a manufacturing or 
a processing operation. 

AIAM urges that the first criterion — a change in tariff classification — be adopted. 
This criterion operates in the following way. Assume the following facts. Steel plate 
is made in County A and is imported into Country B. In Country B, the steel plate 
is manufactured into parts of the body for passenger vehicles. The body parts are 
then imported into Country C. If the tariff classification of the body parts is suffi- 
ciently different from the tariff classification of the steel plate, the body parts are 
deemed to be the product of Country B. Country B is therefore the country of origin. 

Although prepared for use in administering a preferential regime, the North 
American Free Trade Agreement (NAFTA) includes a comprehensive set of rules 
that determine whether or not a change in tariff classification is sufficient to meet 
the test of substantial transformation. The NAFTA rules therefore provide a good 
start in establishing a set of rules for general application. 

AIAM believes that such rules would provide both objectivity and predictability 
in determining the country of origin. The second criterion — based on a stipulated ad- 
dition of value added in Country B — is less workable than the first criterion. The 
choice of the requisite amount of value added is arbitrary, and its calculation can 
raise accounting problems. The third criterion is even less workable. It involves the 
preparation of countless specifications to cover manufacturing and processing oper- 
ations used by industries throughout the world. 

8. Customs Valuation 

Article 1 of the Agreement on Implementation of Article VII of the General Agree- 
ment on Tariffs and Trade 1994 (Agreement) deals with customs valuation. It pro- 
vides that transaction value shall be the preferred basis for determining the duti- 
able value of goods. The transaction value is defined as the price actually paid or 
payable for the goods when sold for export to the country of importation. 

Article 1 also deals with the question whether the price paid by a buyer to a re- 
lated seller may be accepted as the transaction value. It provides that the price will 
qualify if an examination of the circumstances surrounding the sale establishes that 
the relationship did not influence the price. 

The U.S. valuation statute contains similar provisions (19 U.S.C. Sec. 1401a). But 
neither the Agreement nor U.S. law sets out the criteria by which to determine 
whether the relationship did or did not influence the price. This has created consid- 
erable uncertainty. 

A large percentage of international trade is conducted between related parties. In 
the automotive sector, in particular, most imports into the United States are made 
by companies that are related to the foreign manufacturers. There is therefore a 
conspicuous need to develop the appropriate criteria and thereby reduce the uncer- 
tainty surrounding the acceptability of the price between related parties. 

AIAM therefore proposes that both the Agreement and the U.S. law be amended 
to provide that the price between related parties shall be acceptable as transaction 
value if the following circumstances exist and no other contradictory circumstances 
exist: 

1. The parties engage in arm’s-length negotiations concerning the price 
and other elements of the transaction. 

2. The foreign manufacturer’s price is adequate to ensure recovery of all 
costs plus a reasonable profit. 

3. Each party is a principal in its own right, operating as a separate prof- 
it center and having its own separate management. 

4. The related importer buys from the foreign manufacturer, takes title 
to the goods, and is free to resell at its own price. 

5. The related importer takes all the proceeds of its sales and does not 
remit any part of its profit to the foreign manufacturer. 

9. Environmental Standards 

Article XX of GATT 1994 provides for “General Exceptions” to the general GATT 
rules, stating that GATT 1994 does not prevent a Member from adopting measures, 
among other things, related to conservation of exhaustible natural resources or nec- 
essary to protect human, animal, or plant life or health, “subject to the requirement 



226 


that such measures are not applied in a manner which would constitute a means 
of arbitrary or unjustifiable discrimination between countries where the same condi- 
tions prevail, or a disguised restriction on international trade.” This provision has 
given rise to disputes as to what are and are not “GATT-” or “WTO-legal” environ- 
mental measures. The general statement of principle in Article XX appears inad- 
equate to the task of resolving these disputes. This has caused some experts to ques- 
tion whether the WTO is the appropriate forum to resolve trade-related environ- 
mental disputes. AIAM submits that environmental measures that have trade impli- 
cations are appropriately analyzed under the principles of the WTO. The answer is 
not to defer such trade-related environmental disputes to other agreements or other 
fora, but to develop more detailed and clearer rules in the WTO as to when trade- 
related environmental measures are consistent with the WTO. AIAM suggests that 
the next ministerial undertake to define such rules in the context of a specific agree- 
ment interpreting Article XX of GATT 1994. 

Conclusion 

AIAM appreciates this opportunity to offer suggestions as the United States pre- 
pares for the WTO ministerial meeting in Seattle and for the next round of multilat- 
eral trade negotiations. We would be pleased to provide further information to the 
Subcommittee at any time. 



227 



The World’s Leading Automakers 


AIAM is the trade association representing the U.S. 
subsidiaries of international automobile companies 
doing business in the United States. Member 
companies distribute passenger cars, light trucks, 
and multipurpose passenger vehicles in the U.S. 
Nearly half of these vehicles are manufactured in the 
New American Plants established by AIAM 
companies in the past decade. 

International automakers are responsible for nearly 
1.3 million jobs, resulting in nearly $50 billion in 
wages, salaries and benefits, according to a University 
of Michigan study. AIAM also represents 
manufacturers of tires and other original equipment 
with production facilities in the U.S. and abroad. 


MEMBERS 

American Honda Motor Co., Inc. 
Acura Division 

American Suzuki Motor Corporation 
BMW of North America, Inc. 

Land Rover North America, Inc. 

Hyundai Motor America 
Isuzu Motors America, Inc. 

Kia Motors America, Inc. 
Mitsubishi Motor Sales of America, Inc. 
Nissan North America, Inc. 

Infiniti Division 

Porsche Cars North America, Inc, 
Subaru of America, Inc. 

Toyota Motor Sales, U.S. A., Inc. 
Lexus Division 

Volkswagen of America, Inc. 

Audi of America, Inc. 

Bentley Motors, Inc. 
Rolls-Royce Motor Cars, Inc. 

Volvo Cars of North America, Inc. 


ASSOCIATE MEMBERS 

Robert Bosch Corporation 
Daewoo Motor America 
Denso International America, Inc. 

Japan Automobile Manufacturers Association, Inc. 
Peugeot Motors of America, Inc. 
Recreation Vehicle Industry Association 
Saab Cars USA, Inc. 

Societe Anonyme des Usines Renault 


updated4/27/99 





228 


Statement of the Business Roundtable 

Executive Summary 

The Business Roundtable believes strongly that it is in the national interest for 
the United States to lead in launching, and to participate aggressively in, new WTO 
negotiations. We present this paper to make the case for pursuing such negotiations 
and to recommend specific objectives for the U.S. government. 

The United States has been the leader in working for open markets because we 
know that, with our market the most open in the world, and with our companies, 
workers and farmers the world’s most competitive, we have the most to gain from 
removing foreign barriers to our goods and services through trade agreements, and 
the most to lose if such barriers persist. For example, inadequate intellectual prop- 
erty protection, investment distortions, customs red tape, and other regulatory bar- 
riers have emerged as major problems for U.S. exporters and their workers. Our ag- 
ricultural exports continue to face a raft of tariff and nontariff barriers. 

Some interest groups have argued that given the deterioration in the U.S. trade 
balance, this is no time to begin new liberalization initiatives. But this is the wrong 
way to look at the question. Commencing new trade negotiations has the potential 
to stimulate economic growth in those countries suffering weak economies. That will 
boost the demand for American exports. 

Trade is good for our economy, good for business, good for workers, good for farm- 
ers and good for consumers. U.S. exports continue to rise at an impressive rate — 
in 1996-1998, real exports were up 30 percent from the 1993-1995 period. These 
exports are the engine driving economic growth and job creation in the United 
States. American workers also benefit from greater trade. Approximately 12 million 
U.S. jobs are supported by exports. 

With the opportunities presented by the global economy come fears. It is, there- 
fore, important to look closely at some of the charges being leveled about inter- 
national trade and lay these fears to rest. To start with, there is no simple direct 
linkage between imports and lost jobs. It should also be recognized that the trade 
deficit emanates from many factors; any simple linkage to trade policies is mis- 
leading. 

Moving Ahead with Trade Negotiations 

To guide U.S. policymakers. The Business Roundtable has developed four funda- 
mental principles. 

• The United States need trade and investment policies to ensure that trade 
achieves its intended purpose — to raise American and global living standards. 

• U.S. leadership is critical to continued trade liberalization. 

• The rules-based trading system is the foundation of the global economy and 
enforcement of the rules is the basis for public trust and support for U.S. participa- 
tion. 

• Business is a key driver in the global economy and must be a force for devel- 
oping and implementing better trade policy. 

Improving the world trading system is vital for the United States and the global 
economy. It is important to launch new world trade negotiations in 1999 and not 
to let differences in economic performance among countries, or election cycles, delay 
their start. Americans can be confident that new trade negotiations will make the 
United States more prosperous, because the Uruguay Round has delivered, and con- 
tinues to deliver, a boost to economic growth. The WTO Ministerial to begin in Se- 
attle on November 30 provides an opportunity for the U.S. government to promote 
the launching of new WTO negotiations. To assist trade negotiators in crafting an 
agenda for new WTO negotiations, we offer several recommendations for how U.S. 
interests can be best advanced. 

In considering what a new WTO negotiation should accomplish, it is helpful to 
divide the issues into two categories: 

• the built-in agenda that carries forward ongoing negotiations, and 

• review and strengthening of various WTO agreements. 

By distinguishing these two categories, it may become clearer to policymakers and 
the public that much of what needs to be done within the WTO at this time is not 
the development of new rule-based agreements, but rather the continuation of the 
unfinished business of the Uruguay Round. The improvement of current WTO 
agreements is especially important to preparing the world trading system for the 
21st century. 



229 


The built-in agenda includes services, agriculture, and tariffs. The Business Round- 
table makes the following recommendations: 

1. Services. Agreements to open services markets and to grant national treatment 
to providers should be pursued on the most comprehensive basis possible. The WTO 
needs to begin by ensuring that governments ratify both the Financial Services and 
Basic Telecommunications agreements and fulfill their commitments. Negotiations 
should also be launched to expand liberalization commitments under these two 
agreements. 

2. Agriculture. This sector is important for American exporters and for securing 
developing country participation. Agricultural tariffs and tariff-rate quotas should 
be negotiated down, perhaps using a formula approach. Domestic farm programs 
should be reformed to use fewer trade-distorting instruments and to limit domestic 
subsidies. Market access should be improved for biotechnology goods. 

3. Tariffs. Negotiations should consider new steps to address tariffs. This could 
involve tariff harmonization agreements and/or zero-for-zero proposals. When such 
agreements already exist, all governments should be urged to sign on. In addition, 
WTO Members should agree to a permanent ban on customs duties on electronic 
transmissions. 

Review and strengthening of WTO Agreements should be the other major focus of 
new negotiations. Our principal recommendations include: 

4. Intellectual Property. The built-in reviews of TRIPs may make it premature to 
present a comprehensive negotiating agenda for new WTO negotiations. If new in- 
tellectual property negotiations are launched, they should address the significant 
gaps remaining in the protection and enforcement of intellectual property. These ne- 
gotiations should also be structured to prevent any weakening of the protection in- 
cluded in TRIPs. WTO members also need to assure that developing countries honor 
their TRIPs obligations following the termination of the transition periods establish 
by TRIPs. 

5. Subsidies. The WTO Agreement on Subsidies was an important achievement 
of the Uruguay Round, and trade negotiators should resist proposals to weaken it. 
New actions should include, for example, phasing out the toleration of developing 
country export subsidies and considering a work program on the way that WTO 
rules treat different tax systems. 

6. Customs-Related Issues. Customs regulations can have a significant impact on 
business costs and trade flows. Ongoing efforts to harmonize rules of origin should 
be given a high-level push. For all issues of trade facilitation, the WTO should have 
procedures whereby the private sector can submit recommendations. 

7. Sanitary Measures. The WTO has gotten off to a constructive start in imple- 
menting the new sanitary disciplines. But the WTO will need to be vigilant in en- 
forcing dispute decisions. In addition, more attention should be given to the Uru- 
guay Round provision calling for governments to base their sanitary measures on 
international standards. 

8. Technical Barriers to Trade. Conformity assessment procedures often remain 
onerous. The WTO Committee on Technical Barriers to Trade should, therefore, con- 
sider how this process can be expedited, perhaps with a supplier’s declaration of 
conformity. The adequacy of rules to address labeling and product seals also needs 
clarification. 

9. Government Procurement. The Agreement on Government Procurement is not 
part of the WTO single undertaking. The upcoming negotiation should review this 
status to see if Procurement can be fully brought into the WTO. If Procurement re- 
tains its &agrave; la carte character, then governments should consider negotiating 
a Procurement Transparency Agreement. 

10. Trade-Related Investment Measures. The WTO Agreement on Trade-Related 
Investment Measures is the thinnest WTO Agreements and attention should be 
given to strengthening its provisions. One of the critical areas for discipline is the 
imposition of mandatory technology transfer requirements on foreign investors. 

11. Antidumping. The WTO Anti-Dumping Agreement is designed to provide pro- 
tection against unfair practices by exporters. The Uruguay Round negotiations 
struck a proper balance and, while there may be ways to improve the Agreement, 
it would be a mistake to reopen the Agreement when there are so many other trade 
issues of more pressing importance. 

12. Textiles and Clothing. The WTO should evaluate the extent to which countries 
are adhering to their market access obligations under the Agreement on Textiles 
and Clothing. In addition, the United States should continue to seek future liberal- 
ization in this area. 



230 


13. E-Commerce. The importance of this sector to economic efficiency and growth, 
requires the WTO to ensure that countries do not adopt trade-related barriers that 
will inhibit e-commerce’s global expansion. The top priority for the Ministerial 
should be to make permanent the standstill regarding tariffs on electronic trans- 
missions. 

14. Transparency of Government Policies. The WTO should consider the negotia- 
tion of a general transparency agreement. Such an agreement should provide for 
clear publication of government rules and notice before such rules are changed. It 
should also affirm the value of private sector participation in the rules-setting proc- 
ess. 

15. Dispute Settlement. Experience with the WTO dispute process has revealed 
several areas where improvements are needed. First, trade negotiators should con- 
sider whether the timetable for the panel process can be substantially streamlined, 
perhaps by cutting down the time by fifty percent. Second, the WTO needs to ad- 
dress “gaming” by governments that drags out compliance with adverse panel re- 
ports. Third, hearings by WTO panels should, in general, be open to the public. 

16. Nullification and Impairment. The WTO Dispute Settlement Understanding 
renders unusable the non-violation nullification and impairment provisions in the 
GATT because there is now no obligation to withdraw a measure found to nullify 
the benefits under a WTO agreement. This problem needs to be addressed by the 
WTO. 

17. WTO Institutional Improvements. Although the WTO has made great strides 
in institution building over the past few years, more efforts are needed. The 1999 
Ministerial should be seized as an opportunity to catalyze accession negotiations so 
that countries that remain outside of the WTO can be brought in as members on 
appropriate terms. The WTO also needs to do more to assist the least developed 
countries in improving their trade policies. Furthermore, the WTO should continue 
to increase its own transparency. 

18. Improving WTO Cooperation. The WTO needs to strengthen its cooperation 
with the World Bank and the International Monetary Fund, and with other multi- 
lateral organizations where such coordination can improve international economic 
policymaking. 

19. WTO Consultations with Stakeholders. The WTO is making progress on dia- 
logues with stakeholders in trade, but further steps are needed. Once a year, the 
WTO might convene a meeting of various groups such as consumers, business, envi- 
ronment, and labor. This would not be a negotiation, but an opportunity for ex- 
change of information. 

20. Trade and Environment. The WTO is not the right forum to negotiate inter- 
national environmental policy and attempting to do so would distract trade min- 
isters from their primary objective. Nevertheless, on a few issues, the WTO can take 
action. For example, the status of multilateral environmental agreements under 
trade rules needs to be clarified so that the WTO is not perceived in some quarters 
as an impediment to environmental protection. 

21. Labor Issues. The WTO should not be oblivious to the problem of forced labor 
and exploitative child labor. One constructive step that can be taken is to have the 
WTO Secretariat analyze whether the GATT Article XX(e) exception for goods made 
by prison labor can be used to justify a ban on imports produced using forced labor. 
Consideration should also be given to expanding GATT Article XX to deal with prod- 
ucts made using child labor. 

A number of new rule-based WTO initiatives have been proposed such as investment 
and competition policy. 

These issues are important to the international economic system, and careful con- 
sideration should be given to determine whether these issues are ripe for WTO ne- 
gotiations. Adding new agreements does not necessarily strengthen the WTO. If gov- 
ernments are not ready for the WTO to absorb such responsibilities, or if the poten- 
tial new agreements are not well thought out, or if a constructive foundation has 
not be established for the negotiations, then the negotiations may flounder or result 
in counterproductive agreements. 

The globalization of business activities raises important questions about the ex- 
tent to which foreign anticompetitive practices may undermine market access oppor- 
tunities. Yet at this time, there are huge uncertainties as to the proper goals for 
a competition policy negotiation and whether the WTO is the optimal forum. Under 
these circumstances, it is premature to launch a WTO negotiation on competition 
policy. A more constructive approach would be to establish a new WTO work pro- 
gram that will assist governments in thinking through the competition policy issues 
and in exchanging information. 



231 


Achieving disciplines on how governments regulate foreign investment is impor- 
tant to gaining the full benefits of the international economic system. Many key de- 
veloping countries have indicated they are not, at this time, prepared to make com- 
mitments on investment in the WTO. In addition, the Multilateral Agreement on 
Investment negotiations in the OECD revealed substantial differences of opinion be- 
tween the industrialized countries on a wide range of investment issues. These fac- 
tors clearly reveal that an international consensus on the negotiation of a multilat- 
eral investment agreement is still evolving. The importance of international invest- 
ment to the global economy requires that the WTO members to commit themselves 
to developing a consensus on how to move forward as soon as possible. In the event 
the WTO Ministerial does not launch comprehensive international investment nego- 
tiations, a constructive interim course would be (1) to strengthen the WTO Agree- 
ment on Trade-Related Investment Measures by expanding it to include additional 
trade distorting investment measures, and (2) to establish a WTO work program to 
help governments understand how to establish investment regimes that will effec- 
tively provide economic growth. 

Preparing for New WTO Trade Negotiations to Boost the Economy 

The Business Roundtable believes strongly that it is in the national interest for 
the United States to lead in launching, and to participate aggressively in, new WTO 
negotiations. 

This paper has five sections. Section I explains why the United States needs to 
negotiate new trade agreements in order to prosper in the global economy. Section 
II highlights why success in the global economy is critical for the American economy 
and companies, workers and farmers. Section III discusses why the critics of trade 
are off-the-mark. Section IV explains why there is an urgent need for new WTO ne- 
gotiations. Finally, Section V outlines a suggested agenda for new WTO negotia- 
tions. 

I. To Prosper in the Global Economy, The United States Must Reach New 

Trade Agreements 

Over the last several decades, successive Congresses and Administrations have 
made significant and admirable progress in breaking down foreign trade barriers, 
benefitting our companies, workers, farmers and the country as a whole. However, 
the ever-changing global economy continually presents new opportunities and chal- 
lenges. The United States must reach out for these opportunities and meet these 
challenges. In order to do so, the United States must continue to pursue trade liber- 
alization, especially through new international agreements. If we are not in the van- 
guard, we risk falling behind other countries that are pursuing their own agendas. 

International trade agreements are needed to open foreign markets for American 
companies, workers and farmers. 

The United States has been the leader in working for open markets because we 
know that, with our market the most open in the world, and with our companies, 
workers and farmers the world’s most competitive, we have the most to gain from 
removing foreign barriers to our goods and services through trade agreements, and 
the most to lose if such barriers persist. 

However, despite recent trade agreements and improvements in world trade rules, 
foreign barriers remain and new ones continue to be erected. Many countries still 
impose significant tariffs on our exports. In an increasingly competitive global econ- 
omy, these “tcixes” can make the difference between success and failure in foreign 
markets. 

Moreover, as tariffs and traditional non-tariff barriers to our goods and services 
exports have fallen, new problems have emerged. For example, inadequate intellec- 
tual property protection, investment restrictions, customs, and standards-related 
and other regulatory barriers have emerged as major problems for U.S. exporters 
and their workers. Our agricultural exports continue to face a raft of tariff and non- 
tariff barriers. Recent agreements have gone part of the way toward resolving some 
of these problems, but more progress is needed multilaterally, regionally, bilaterally 
and sectorally. 

Some interest groups have argued that given the deterioration in the U.S. trade 
balance, this is no time to begin new liberalization initiatives. But this is the wrong 
way to look at the question. Commencing new trade negotiations has the potential 
to stimulate economic growth in those countries suffering weak economies. That will 
boost the demand for American exports. 



232 


To guide U.S. policymakers, The Business Roundtable has developed four short 
principles which we note below. Broadening the consensus on these principles be- 
yond the business community is one of our goals in the coming year. 

Principles to Guide U.S. Trade Policy 

In planning for new trade talks, U.S. policymakers should be guided by the following 
four principles: 

1. Given the reality of the global economy, the United States needs trade and in- 
vestment policies to navigate through the complexities of a global system and ensure 
that trade achieves its intended purpose — to raise American and global living stand- 
ards. The U.S. Government needs to continue to be a powerful advocate for U.S. ex- 
ports, both in terms of political support and programs to support U.S. exports. At 
the international level, there is a need for effective global financial institutions to 
promote international economic stability. Within the United States, there is a need 
for periodic review of U.S. laws and regulations — including sanctions and trade stat- 
utes to ensure that they do not unnecessarily impede the ability of U.S. agriculture, 
industry, and their workers to compete in world markets. 

2. U.S. leadership is critical. For the last 50 years, the United States has led the 
effort to liberalize trade, and the United States and our trading partners have bene- 
fited both economically and strategically. Continued efforts to liberalize trade will 
require U.S. leadership. 

3. The rules-based trading system is the foundation of the global economy and en- 
forcement of the rules is the basis for public trust and support for U.S. involvement 
in the global economy. The strength of the rules-based WTO system also lies in its 
inclusiveness and transparency. Compliance with, and enforcement of, the rules gov- 
erning trade is key to sustaining support for further trade liberalization. This ap- 
plies to the WTO as well as bilateral rules under agreements negotiated between 
the United States and other countries. Furthermore, given the importance of the 
rules-based WTO system, aggressive efforts should be made to incorporate into the 
system trading partners that have demonstrated a commitment to WTO principles 
and trade liberalization. 

4. Business is a key driver in the global economy and must be a force for devel- 
oping and implementing a trade policy that is no longer viewed as a zero sum game. 
Nations pursue trade to benefit their citizens. Business must work with govern- 
ments to create a global trading system that provides benefits to more individuals 
in society and accommodates the interests of a broader range of stakeholders. Busi- 
ness must also ensure that the stakeholders clearly understand the importance of 
trade to their future. The best way to assure that trade is a win-win for a broader 
group of Americans is by training and upgrading the skills of the workforce, enforc- 
ing international trade rules and, when necessary, ensuring that companies and 
workers have access to appropriate import relief procedures and remedies. 

II. Success in the Global Economy is Critical for the American Economy and 
Companies, Workers and Farmers 

The United States must lead in promoting trade liberalization around the world 
because the U.S. economy has become internationalized. The United States cannot 
hide from the reality of globalization, and cannot afford to turn its back on the op- 
portunities it presents. The United States is the strongest country in the world eco- 
nomically, politically and militarily. However, the United States cannot maintain 
that strength if it does not continue to engage fully the world outside its borders. 

International trade is increasingly important for the world as a whole. Since 1990, 
world exports have grown an average of 6.5 percent a year. This is a little more 
than three times as fast as growth in world GDP and world merchandise production. 

The world at large is more important to the U.S. economy than ever before. We 
remain the world’s largest exporter — our total exports were $931 billion in 1998 
($671 billion of goods and $260 billion of services). Total trade — imports plus ex- 
ports — accounted for over $2.0 trillion in business activity, equal in magnitude to 
nearly 24 percent of the size of the U.S. economy as a whole. Over 95 percent of 
the world’s consumers — 5.6 billion people — live outside the United States, and the 
world’s fastest-growing and most promising new markets are spread across the 
globe. There is no way the United States can have a bright economic future if we 
do not actively pursue these foreign customers and markets. 



233 


Trade is good for our economy, good for business, good for workers, good for farmers 
and good for consumers. 

American companies, workers and farmers have worked hard to compete and win 
in the global economy, and the United States has seen the positive results. U.S. ex- 
ports continue to rise at an impressive pace — in 1996-1998, real exports were up 
30 percent from the 1993-1995 period. These exports are the engine driving eco- 
nomic growth and job creation in the United States. Export growth has accounted 
for about 27 percent of the nation’s overall economic growth over the past ten years, 
during which time export growth outpaced the growth of the economy as a whole. 
In 1998, however, exports slowed due to the ongoing Asian economic crisis. (The im- 
pact of the Asian economic crisis on U.S. businesses, workers and farmers highlights 
the reality that U.S. economic growth and stability depends in large measure on 
international markets.) 

Trade is not just good for big companies. First of all, small and medium sized 
companies are active exporters. In 1992 (the latest available data) companies em- 
ploying fewer than 500 employees exported $103 billion in goods, about 29% of U.S. 
goods exports. Many small and medium-sized companies also supply large compa- 
nies with products and services that are used in the production of the large compa- 
nies’ exports. Big companies recognize that smaller companies are the backbone of 
their business — ^big companies need smaller companies to survive, and vice versa. 
Trade benefits all in the supply chain. 

Trade is good for American workers. Approximately 12 million U.S. jobs are sup- 
ported by exports. Export-related jobs account for one out of eight jobs created in 
the United States, according to the most recent study. Exports account directly or 
indirectly for about one in ten civilian jobs in the nation and about one in five man- 
ufacturing jobs. 

Export-related jobs are also higher-wage jobs. They typically pay 13 to 16 percent 
more than the average compensation. Moreover, a lot of our export growth is in 
high-wage, high-tech sectors. These are clearly the types of jobs we want to promote 
for this and future generations. 

Exports are particularly important for the nation’s farmers — the U.S. agricultural 
sector is more than five times as reliant on foreign trade as the U.S. economy as 
a whole. U.S. agriculture exports hit a record $60 billion in 1996, but have fallen 
since then due to economic crises and recessions in Asia and Latin America. Agricul- 
tural exports support about 900,000 full-time jobs. One out of every three farm acres 
in America, and 44 percent of U.S. wheat output, 45 percent of U.S. rice output, 
and 37 percent of U.S. soybean output, are utilized for exports. Last year, U.S. agri- 
culture had a trade surplus of about $13 billion. This is smaller than in previous 
years because of weak international markets. 

Imports are also important to consumers by maintaining a vibrant, competitive 
economy and high standards of living. Imports can help keep inflation in check 
which translates into low interest rates, high investment, and hence high job cre- 
ation. Imports also give consumers a greater choice of goods and services, including 
those not available domestically. They create jobs in areas such as retailing, dis- 
tribution, ports and transportation. Imports allow U.S. companies and workers to 
use the best technology from around the world, increasing their productivity and 
competitiveness and therefore leading to higher wages and creation of more U.S. 
jobs. Moreover, imports encourage competition and innovation. 

International investment is also a crucial part of competing and winning in the glob- 
al economy. 

In order to seize the opportunities presented by the global economy, companies 
must be able to invest in other countries when this makes sense for their busi- 
nesses. Such investment creates new markets and customers for U.S. companies and 
their workers and boosts the U.S. economy. 

One of the primary goals of foreign investment is the desire to serve businesses 
and consumers in the country in which the investment occurs. In 1996 (the latest 
available data), about 66 percent of total sales by U.S. companies’ majority-owned 
foreign affiliates were sold in the affiliate’s country of location; another 24 percent 
were sold in other foreign countries. So, a total of 90 percent of U.S. companies’ for- 
eign-made goods and services are sold outside the United States. This makes sense 
because customers demand prompt and reliable service from their suppliers; it is 
frequently difficult to meet those needs from thousands of miles away. 

Investment abroad brings back significant benefits here at home. Because U.S. 
companies invest overseas to stay competitive and win new customers, their foreign 
investments help boost U.S. exports, creating American jobs. Exports follow invest- 
ment — in 1996 (the latest year for which data is available), exports of goods by U.S. 



234 


companies to their foreign affiliates totaled $162 billion, 26 percent of all U.S. goods 
exports. Moreover, U.S. companies’ trade with their foreign affiliates generated a 
$26 billion trade surplus. The result is jobs here at home. According to the latest 
available figures (1996), U.S. companies that invest overseas employed 19 million 
U.S. workers — 15 percent of all private sector jobs. 

U.S. companies’ overseas operations also generate income that can come back to 
the United States to be reinvested in U.S. operations to the benefit of the local econ- 
omy and U.S. workers. In 1996, this income was almost $135 billion. Moreover, 
overseas investments are often needed to keep U.S. companies competitive. Foreign 
investment allows companies to enjoy greater economies of scale and scope as well 
as access to important foreign technologies. 

It is also important to understand that foreign investment by U.S. companies is 
concentrated in developed countries. If foreign investment were motivated by a 
search for low cost inputs, developing countries would be the predominant location 
for foreign investment. But 68 percent of U.S. companies’ foreign investment is in 
developed countries, some of which have more stringent labor and environmental 
laws and higher labor costs than the United States. 

Because the United States is the world’s most competitive nation, it has the most to 
gain from the global economy and from trade liberalization. 

In the 1980s and early 1990s, conventional wisdom held that the United States 
had been overtaken by Japan and Germany and might never regain its place as an 
economic leader. Today, the United States is back on top. Our economy has been 
growing faster than those in Europe and Japan. We are the world’s biggest exporter 
of both goods and services. We have the highest budget surplus (as a percentage 
of gross domestic product) of any G-7 economy except Canada. We have created 
more net jobs in the past few years than all other G-7 nations combined, and our 
unemployment rate is below that of every other major industrial economy except 
Japan. 

The United States has the world’s largest economy, the most productive workers, 
the best technology, and the most innovative people. That is why it is considered 
to be the most competitive large country in the world, as recently confirmed by the 
Global Competitiveness Report from the World Economic Eorum. The United States 
is highly competitive in a range of important industries, such as: semiconductors, 
computers, computer software, aerospace equipment, applied materials, bio- 
technology, construction equipment, telecommunications and other information- 
based equipment and services, financial services, information services and enter- 
tainment. These are the technologies of today — and of the 21st century. 

The United States has done so well because its companies and workers have ag- 
gressively sought out the opportunities presented by the global economy. The U.S. 
government needs to continue negotiating new international trade agreements and 
enforce existing agreements to ensure that U.S. companies and workers, and the 
products and services they produce, are given the opportunity to compete fairly and 
to prosper in the global economy. The United States has nothing to fear from a 
rules-based trading system. 

The United States also needs to ensure the continued competitiveness of the na- 
tion, its companies, and its workers. In a world of increasing technological innova- 
tion, U.S. companies simply cannot succeed without educated, trained and skilled 
workers, scientists and technicians. U.S. companies are doing their part to help en- 
sure that our workers remain the best in the world. 

Each year, companies in the United States spend an estimated $30 billion on for- 
mal training and $180 billion on informal on-the-job training of their employees. 
Each year, U.S. companies make huge investments in plants, equipment and re- 
search & development (over $930 billion on capital investments and over $155 bil- 
lion on research & development) to ensure that their workers can benefit from the 
best technology and equipment. 

U.S. companies are also working to improve the quality and performance of the 
nation’s K-12 education system, including a state-by-state initiative to achieve com- 
prehensive education reform across the nation. Forty-three states now have busi- 
ness-led education reform coalitions that encourage governors, state legislators and 
state departments of education to support fundamental changes in their schools. 
With improved education and training and wise governmental policies, the United 
States will remain highly competitive. 



235 


III. Critics of Trade are Off the Mark 

With the opportunities presented by the global economy come fears. It is, there- 
fore, important to look closely at some of the charges being leveled about inter- 
national trade and lay these fears to rest. 

There is no simple direct linkage between imports and lost jobs. 

Some have argued that trade costs U.S. jobs because of imports. It is obvious that 
U.S. exports generate U.S. jobs because someone has to make those goods or 
produce those services. But if we look at the reality of imports, it is not obvious that 
they translate into lost U.S. jobs and, in fact, often they do not. Some imports, such 
as the $51 billion of petroleum/fuel and $3.5 billion of coffee we are importing, are 
products that are simply not available or are in short supply in the United States. 
Other imports, by providing a competitive input into a production process for exam- 
ple, complement U.S. production and support rather than displace U.S. jobs by ena- 
bling U.S. companies to be competitive at home and abroad. Such imports include 
U.S. components, and production of these components supports U.S. jobs. Imports 
also create jobs in such areas as ports, distribution, wholesaling and retailing. 

It is true that some jobs are displaced by imports. This is a particular problem 
in cases involving unfair trade. In these cases, it is especially important for the 
United States to strongly enforce its unfair trade laws. However, when unfairly 
traded goods are not at issue, trade is only one factor that impacts the job market; 
technological change, for example, is far more significant. In fact, recent studies, in- 
cluding from the Organization for Economic Co-operation and Development and the 
International Monetary Fund, find that trade is not a major factor behind any job 
or wage loss that may exist in industrialized countries. These studies found other 
factors, including technological change, to be much more important. Moreover, jobs 
displaced by imports are more than offset by other jobs created by imports and ex- 
ports and the other benefits of trade to the U.S. economy. 

The United States cannot and should not ignore the real effects of job loss for in- 
dividuals, regardless of the cause. However, trying to freeze the U.S. economy is not 
in the interest of this or future generations of companies and their workers. The 
national and world economies are seeing a shift of jobs from low-productivity, low- 
skill jobs to high-productivity, high-skill jobs. These job shifts are to be expected and 
welcomed as we approach the 21st century; they will lead to a better future for to- 
day’s and tomorrow’s workers. The U.S. work force is one of the most diversified 
and capable in the world, and as a very large and flexible economy, the United 
States has the ability to absorb workers into productive and well-paying jobs. As 
noted above, the United States needs to ensure that all Americans get the education 
and learn the skills they need in order to be as competitive as individual citizens 
as we are now as a nation. In addition to government and private sector education 
and training initiatives, the United States must also use trade negotiations and the 
resulting agreements to break down foreign barriers so that we can win new cus- 
tomers abroad and boost American incomes. 

Trade deficits result from many factors and simple linkage to trade policies is mis- 
leading. 

Some have pointed to the U.S. trade deficit as evidence that trade is bad for the 
United States. Actually, the trade balance is determined by macroeconomic factors, 
such as saving and consumption rates, currency values and growth rates. Moreover, 
trade deficits result in part from our growing economy, employment that is on the 
upswing, and our consumers and businesses having more money to spend on both 
domestic goods and imports. At the same time, many of our trading partners are 
in recession or growing only slowly. 

The trade deficit has also fallen significantly in the last decade when compared 
to the size of our economy. Moreover, a large portion of our trade deficit consists 
of petroleum imports, which is not a job-displacing commodity — our deficit in petro- 
leum products was $43 billion in 1998. Another huge chunk, about $34 billion, was 
the auto and auto parts deficit with Japan, which is due to special, unique bilateral 
problems. It is also important to note that, compared to the size of its economy, the 
United States imports far less than every other developed country except Japan. 

When discussing the trade deficit, the United States should be addressing the 
macroeconomic factors it can try to control, such as the low saving rate in the 
United States and government spending, while continuing to focus on tearing down 
foreign barriers to our exports. Resorting to isolationism and protectionism to 
“solve” the trade deficit problem will not help. 



236 


International investment, as with trade, benefits the economy and workers. 

There are also those who argue that international investment is had. The facts 
noted earlier prove that this is not true. 

It is important to recognize that the decision to invest is a very complex one, in- 
volving many factors, not just low production costs. The United States is endowed 
with numerous advantages that make it a very attractive place for U.S. companies 
and foreign companies to invest, including a highly productive work force, state of 
the art communications networks and computer systems, technologically advanced 
production facilities, a well-developed transportation infrastructure, and stable and 
sophisticated legal and financial systems. These advantages provide the reason why 
the U.S. economy attracts so much new investment. If low wages were the main de- 
terminant of investment decisions, our principal foreign direct investments would be 
in less developed countries rather than in highly industrialized, developed countries 
where, in fact, our principal investments are made. 

Contrary to irresponsible statements by some, U.S. companies are not pulling up 
their stakes in the United States. U.S. companies’ direct investments overseas were 
$115 billion in 1997, only 13 percent of non-housing domestic investment in the 
United States. Fifty percent of that foreign investment did not even come from the 
United States, but from the earnings of the companies’ foreign operations them- 
selves. As for Mexico, U.S. companies’ investment there is small and, in many in- 
stances, are in niche markets like telecommunications. U.S. foreign direct invest- 
ment in Mexico was only 0.5 percent of U.S. total investment in 1997, or about $5.9 
billion. 

Trade agreements do not threaten health and safety. 

Another favorite of trade skeptics is to raise the specter of unsafe food. This is 
nothing but scare tactics — trade agreements do not hamper our ability to protect 
ourselves from any of these problems. Trade agreements do not result in unregu- 
lated trade — the United States is always able to enforce our laws and close our bor- 
der to any product that could legitimately result in harm to our citizens. As recent 
problems with domestically-produced food demonstrate, ensuring the safety of the 
U.S. food supply is not a trade issue. 

IV. The Urgency of WTO Negotiations 

Initiating new multilateral trade negotiations in the WTO is vital for the United 
States and the global economy. Since the Uruguay Round negotiations were com- 
pleted in 1993, the benefits of open trade for consumers and workers have been 
amply demonstrated. The new World Trade Organization (WTO) has provided a 
framework for carrying on negotiations in selected sectors, for settling disputes, and 
for promoting communication between governments and stakeholders in the private 
sector. This record demonstrates that the trading system works. Now it is time to 
begin new negotiations to remove remaining barriers to trade and investment. Ef- 
forts are also needed to improve the WTO’s rules and its dispute resolution process. 

It is important to launch new world trade negotiations in 1999 and not to let dif- 
ferences in economic performance among countries, or election cycles, delay their 
start. The world waited seven years between the GATT Tokyo Round and the Uru- 
guay Round. But today economic change is much more rapid. Because markets re- 
spond so quickly in our global economy, trade negotiations begin to generate eco- 
nomic benefits very quickly. Thus, further delay in starting new negotiations will 
postpone the economic stimulus that successful trade negotiations can deliver. Even 
worse, a lack of momentum for new trade talks may lead some governments to re- 
nege on previous liberalization commitments. 

Americans can be confident that new trade negotiations will make the United 
States more prosperous, because the Uruguay Round has delivered, and continues 
to deliver, a boost to economic growth. Recent studies suggest that economic growth 
would have been much less robust without the stimulus of trade liberalization. 
There are many explanations for why the U.S. economy has been so strong in the 
past few years, but surely one of them is that reduced trade barriers around the 
world are expanding opportunities for American businesses, workers, and farmers. 

Although some interest groups vilify the WTO, the fact is that the WTO is just 
an organization of governments who cooperate to reduce trade barriers and elimi- 
nate improper trade discrimination. A strong, successful WTO is in the U.S. interest 
because this rules-based system can be used to confront governments that discrimi- 
nate against Americans who export goods, services, and capital investments. The re- 
cent actions by the WTO to increase its own transparency and to release more docu- 
mentation have contributed to a better understanding of the WTO by the public. 



237 


The Preamble to the Agreement Establishing the WTO recognizes that trade rela- 
tions should be conducted with a view to raising standards of living, ensuring full 
employment, and expanding the production of trade in goods and services while al- 
lowing for the optimal use of the world’s resources in accordance with the objective 
of sustainable development. This is common ground among governments as well as 
among major stakeholders in world trade. Of course, there are differences between 
stakeholders as to the most effective way to achieve such community goals. But 
there is no reason to assert that the WTO, or economic globalization generally, 
hinders the achievement of human resource or environmental objectives. 

The WTO Ministerial to begin in Seattle on November 30 provides an opportunity 
for the U.S. government to promote the launching of new WTO negotiations. This 
is the right moment to start new talks because the experience of the last few years 
shows several areas in which current WTO agreements can be built upon and im- 
proved. To assist trade negotiators in crafting an agenda for new WTO negotiations, 
we offer several recommendations for how U.S. interests can be best advanced. 

V. Suggested Agenda for New WTO Negotiations 

In considering what a new WTO negotiation should accomplish, it is analytically 
helpful to divide the issues into two categories: 

• the built-in agenda that carries forward ongoing negotiations, and 

• review and strengthening of various WTO agreements. 

By distinguishing these two categories, it may become clearer to policymakers and 
the public that much of what needs to be done within the WTO at this time is not 
the development of new rule-based agreements, but rather the continuation of the 
unfinished business of the Uruguay Round. This requires the completion of current 
negotiations and the adjustment of Uruguay Round agreements based on the experi- 
ence of the first five years of operation. 

The improvement of current WTO agreements is especially important to preparing 
the world trading system for the 21st century. Although the Uruguay Round in- 
cluded a number of trade agreement milestones, the full potential of these agree- 
ments has not yet been achieved. Rather than devoting resources to the negotiation 
of entirely new WTO agreements, it may will be better for governments to focus on 
improving existing disciplines. 

Governments should aim to keep the overall negotiating process flexible regarding 
the implementation of new decisions. In the past, the operating procedure in trade 
negotiations was that nothing is decided until everything is decided. Yet the more 
structured WTO decisionmaking mechanisms provide a way to implement agree- 
ments in individual areas as they are agreed. Requiring all agreements to be final- 
ized at the same time would likely draw out the negotiating process, with no con- 
crete results attainable for several years. Given the growing importance of trade to 
the United States and world economies, the United States should not have to wait 
over seven years (as in the Uruguay Round) before a package of agreements is final- 
ized. 

An important precondition for successful trade negotiators is that all WTO mem- 
bers should agree to a standstill on trade-restrictive measures in advance of the 
Ministerial and throughout the negotiations. Such a standstill would ensure that 
governments do not modify their laws in order to gain bargaining advantage. The 
standstill should not interfere with the continued use of trade remedy laws con- 
sistent with WTO rules. 

It is important that WTO agreements apply to the largest possible number of 
large countries. So the WTO should intensify its efforts to achieve the accession of 
China and other countries seeking accession on commercially acceptable terms. 
Strengthening the WTO will also underline for China and other non-WTO-countries 
the value of being part of the multilateral trading system. 

Below we discuss actions that the WTO might take with respect to the built-in 
agenda and the strengthening of existing WTO agreements. Following that, we dis- 
cuss the topic of new issues for the trade round. One common theme in this paper 
is the need to improve enforcement of existing WTO obligations. Doing so would 
make the WTO a more effective institution and boost support for it in the United 
States. 


The Built-in Agenda 


1. Services 

Because world trade in services is increasing at a faster rate than trade in goods, 
the expansion of the Services Agreement should be a top priority in the next round. 
The problem in services is that, at present, the General Agreement on Trade in 



238 


Services provides only minimal disciplines. The substantive commitments come in 
sectoral agreements on a plurilateral basis, but so far only a few sectors have been 
covered in detail. 

Agreements to open services markets and to grant national treatment to providers 
should be pursued on the most comprehensive basis possible. The WTO needs to 
begin by ensuring that governments ratify both the Financial Services (which covers 
insurance, securities and banking) and Basic Telecommunications agreements and 
fulfill their commitments. Negotiations should also be launched to expand liberaliza- 
tion commitments under these two agreements. Among the high priority sectors for 
obtaining new services agreements are: all levels of distribution, transportation, con- 
struction, tourism, information technology, health care, advertising, express deliv- 
ery, and business professional services. 

Governments should also consider new modalities of negotiation that would accel- 
erate market opening for services. For example, a negative list approach would com- 
mit a government to liberalize all service sectors unless a government takes a spe- 
cific exemption for the sector as a whole or for a particular law or regulation. The 
WTO should also insist that applicants for WTO membership make commitments 
under the Financial Services and Basic Telecommunications agreements. 

Negotiations on services should entail discussion of regulatory barriers which are 
increasingly a source of trade disputes. Regulations should be substantively respon- 
sive, impartial, minimally intrusive, and transparent. A framework for developing 
principles to guide regulatory behavior should be pursued as well as promotion of 
mutual recognition and harmonization of standards. 

The WTO should also try to address the problem of regulations that manifest fa- 
voritism to incumbent suppliers. Private practices — for example, when providers of 
essential services charge unreasonable fees to foreign entrants — should also be dis- 
cussed. In addition, negotiators should seek commitments against allocating “trad- 
ing rights” on a discriminatory basis. 

2. Agriculture 

The Uruguay Round made progress in reducing agricultural trade barriers and 
making import protection more transparent. But there is far more to do in address- 
ing policies that impede trade. The WTO Agreement on Agriculture already commits 
governments to commence negotiations to seek further progress on this same agen- 
da. Negotiations on agriculture are especially important because the prospects for 
developing countries of obtaining greater market access can encourage responsive 
commitments by these countries not only on agriculture, but also on other sectors 
of interest to industrial countries. 

Significant negotiating goals should be put on the negotiating table. Among these 
goals are: 

• Agricultural tariffs and tariff-rate quotas should be negotiated down, perhaps 
using a formula approach. Whenever possible, zero-for-zero agreements should be 
pursued. 

• Domestic farm programs should be reformed to use fewer trade-distorting in- 
struments and to limit domestic subsidies. To complement these initiatives, the 
WTO should look for ways to provide incentives for market-oriented actions. 

• Export subsidies should be targeted for elimination. 

• When governments persist in relying upon state trading entities, the market 
share earmarked for such entities should be reduced. 

• Market access should be improved for biotechnology goods, including through 
the mutual recognition of health-related tests. 

3. Tariffs 

Although average tariff levels have fallen as a result of trade negotiations, tariffs 
remain significant barriers in some industrial sectors and for trade with developing 
countries. The upcoming trade negotiations should consider steps to address tariffs, 
such as the following: 

• High tariffs should be put on a timetable for reduction. 

• Approaches such as tariff harmonization agreements or zero-for-zero proposals 
should be aggressively pursued. When such agreements already exist, all govern- 
ments should be urged to sign on. 

• “Nuisance” tariffs — those under 5 percent — should be eliminated. 

• WTO Members should agree to a permanent ban on imposing customs duties 
on electronic transmissions. 

• For any Harmonization Agreement, such as Chemical Tariffs, the number of 
government participants should be expanded as broadly as possible. 

• The Information Technology Agreement should be expanded to cover additional 
products and participation should be mandatory for all WTO Members. 



239 


• The recent decision in the Asia-Pacific Economics Cooperation forum to move 
the Early Voluntary Sectoral Liberalization talks to the WTO presents an oppor- 
tunity to the WTO to make progress on these sectors at the Ministerial quickly. 

• Special consideration should be given to the elimination of tariff discrimination 
caused by countries lowering their tariffs on a non-most-favored-nation basis in an- 
ticipation of joining a customs union or negotiating a free trade area. 

Review and Strengthening of WTO Agreements 

The WTO is a new institution and many of the provisions written in the early 
1990s now need to be updated to reflect actual experience with their operation. 
Using the upcoming negotiations to improve the effectiveness of existing agreements 
is the best way to strengthen the WTO for the challenges of the 21st century. Show- 
ing that the WTO works will also help draw the public support necessary to defend 
the world trading system. 

There are a number of provisions in WTO Agreements that call for review or re- 
consideration within a specified period. Many of these reviews are now ongoing. In 
presenting the issues below, we note that some of them might have handled through 
the new WTO decisionmaking procedures. 

4. Intellectual Property 

Even after the improvements achieved in the Uruguay Round Agreement on 
Trade-Related Aspects of Intellectual Property (TRIPs), significant gaps remain in 
the protection and enforcement of intellectual property rights. This can impede inno- 
vation and unsettle trade relations. The built-in WTO reviews of TRIPs may make 
it premature to present a comprehensive negotiating agenda for new WTO negotia- 
tions. If new intellectual property negotiations are launched, they should address 
the significant gaps remaining in the protection and enforcement of intellectual 
property. These negotiations should also be structured to prevent any weakening of 
the protection included in TRIPs intellectual property protection. Thefollowing pro- 
posals are among the possible objectives for strengthening intellectual property pro- 
tection. 

• Eor patents, there should be an agreement to eliminate the TRIPs provision 
(Article 27.3) allowing governments to exclude from patentability plants and ani- 
mals other than micro-organisms. Governments should also incorporate new provi- 
sions in TRIPs to restore time in patent terms lost due to lengthy delays in obtain- 
ing patents or in obtaining marketing approval from a government. In addition, gov- 
ernments should agree to prohibit international exhaustion. 

• Eor trademarks, there should be an agreement to enhance protection through 
better regulation of domain name allocation on the Internet. 

• Eor trade secrets, there should be an agreement to include a linkage between 
the marketing approval of generic copies and any underlying patents to ensure that 
existing products are not being infringed by the marketing of generic copies. In ad- 
dition, a “negligence” standard should be substituted for the “gross negligence” 
standard currently required in TRIPs. The obligation on data exclusivity should be 
classified to ensure that it includes non-reliance by governments on the data for a 
fixed period of time, such as the ten years currently required by the European 
Union. 

• Eor industrial and layout designs, there should be an agreement to increase 
the minimum term of protection, now ten years from date of registration or first 
commercial exploitation. 

The WTO should also consider how TRIPs can be adapted quickly to respond to 
new and emerging technologies and new methods of transmitting and distributing 
products embodying intellectual property. 

Governments also need to focus on ensuring the enforcement of TRIPs obligations. 
Some elements of such a strategy might include: 

• Assuring that developing countries honor their TRIPs obligations following the 
termination of the transition periods established by TRIPs. 

• Taking no action to renew the five-year moratorium (Article 64.2) on the use 
of “nullihcation and impairment” complaints with regard to TRIPS commitments. 

5. Subsidies and Countervailing Measures 

The WTO Agreement on Subsidies and Countervailing Measures (SCM) was an 
important achievement of the Uruguay Round and should not be weakened. U.S. ne- 
gotiators should also ensure that the SCM continues to be applied to civil aircraft, 
and should continue to adhere to the negotiating objectives for civil aircraft estab- 
lished by the Uruguay Round Agreements Act. In addition, negotiators should con- 
sider the following objectives: 



240 


• The toleration of developing country export subsidies should be phased out so 
that the same disciplines against export subsidies apply to all countries. 

• The mandated review of the discipline on Non- Actionable (green light) sub- 
sidies should be commenced soon so that the findings can inform WTO negotiations. 

• A work program should be considered on whether current WTO rules are neu- 
tral with respect to whether a government relies on direct taxes (like the income 
tax) versus indirect taxes (like the value-added tax). 

6. Customs-Related Issues 

Although often technical, national regulations regarding rules of origin, pre-ship- 
ment inspection, import licensing, and valuation can have a significant impact on 
business costs and trade flows. The new WTO negotiations should give attention to 
these issues, including the following: 

• The WTO Agreement on Preshipment Inspection provides for a review by the 
Ministerial Council every three years, but contains no mechanism for ongoing eval- 
uation. Negotiators should establish a working group to consider on a regular basis 
any needed changes to this Agreement. 

• The Uruguay Round provides for a work program on the harmonization of 
rules of origin. These efforts have been slow going. The trade ministers should 
renew their efforts to achieve harmonization this year. 

• Further effort is needed to assure that governments are implementing the 
WTO Agreement on Customs Valuation. The WTO should also consider ways to ad- 
dress the misuse of valuation methodologies without having to invoke dispute settle- 
ment procedures. 

For all issues of trade facilitation, the WTO should have procedures whereby the 
private sector can submit recommendations regarding ways in which customs regu- 
lations can be improved. 

7. Sanitary and Phytosanitary Measures 

The WTO Agreement on Sanitary and Phytosanitary (SPS) does not prevent gov- 
ernments from enforcing legitimate food safety and public health regulations. What 
SPS is designed to do is to assure that governments do not block imports through 
unnecessary or unjustifiable regulations either intentionally or through inadvert- 
ence. Any attempt to water down these requirements should be opposed. 

The WTO has gotten off to a constructive start in implementing the SPS dis- 
ciplines. Dispute panels and the Appellate Body are giving fair interpretations to 
the new requirements to assure that regulations have a scientific justification and 
are based on a risk assessment. We expect that the SPS Agreement will continue 
to be tested as governments, such as the United States, complain about import bar- 
riers based on a bogus health rationale. 

More attention should be given to the provision calling for governments to base 
their SPS measures on international standards except when those standards fail to 
provide a high enough level of health protection. Greater harmonization or mutual 
recognition of food safety standards will lead to a safer world food supply and will 
help achieve the dual goals of fewer trade restrictions and the avoidance of episodes 
in which protectionists blame tainted food on free trade. Developing countries will 
need more extensive technical assistance in improving their food safety standards. 

8. Technical Barriers to Trade 

As tariff barriers fall, some governments and standard-setting organizations will 
be tempted to use technical and certification standards as a substitute for tariffs in 
order to protect national industry. Recognizing this possibility, the Uruguay Round 
produced a new Agreement on Technical Barriers to Trade (TBT). This Agreement 
requires that technical regulations not be more trade-restrictive than necessary to 
fulfill a legitimate objective — such as prevention of deceptive practices, health, safe- 
ty, and the environment. Under the Agreement, governments are encouraged to use 
international standards as a basis for their technical regulations. When a technical 
regulation seeks to achieve one of the listed objectives and is in accord with inter- 
national standards, the TBT Agreement provides that such regulation will be pre- 
sumed not to create an unnecessary obstacle to trade. 

These new disciplines have not yet been tested in WTO dispute settlement. Never- 
theless, a number of concerns have arisen: 

• The TBT Agreement accords deference to all international standards and pro- 
vides no avenue for withdrawing deference for standards that are outdated or that 
were adopted through flawed procedures. 

• For standards seeking to fulfill health, safety, or environmental objectives, 
TBT lacks a requirement that such standards be based on scientific principles. 



241 


• For those industries, such as biotechnology, that come under both the SPS and 
TBT Agreements, two different rules may apply. 

• Conformity assessment and certification procedures often remain onerous (e.g., 
pharmaceuticals). The WTO Committee on Technical Barriers to Trade should con- 
sider how this process can be expedited, perhaps with a supplier’s declaration of 
conformity or expanding existing regional mutual recognition agreements or com- 
mon dossier procedures. 

• The adequacy of TBT rules to address labeling and product seals remains un- 
certain. New rules may be needed to assure that “independent” labeling schemes do 
not become trade barriers. 

9. Government Procurement 

The Agreement on Government Procurement is not part of the WTO single under- 
taking but rather is a “plurilateral” agreement comprising only 26 of 133 WTO 
member countries. The upcoming trade round should review this status to see if 
Procurement can be fully brought into the WTO. This is a huge sector totaling over 
$3 trillion a year worldwide. 

For those governments that do participate in the Procurement Agreement, efforts 
should be made to strengthen the Agreement by: (1) expanding coverage of sub- 
national governments and government-controlled enterprises; (2) inclusion of addi- 
tional service sectors; and (3) lowering the threshold for obligations to apply. The 
issue of developing country participation in the Procurement Agreement should also 
be discussed. These countries may have the most to gain from transparent and fair 
procurement processes that make best use of their limited resources. 

If Procurement trade commitments retain their &agrave; la carte character, then 
governments should consider negotiating a Procurement Transparency Agreement 
that would become a requirement of all WTO members. Such an agreement would 
help provide a fairer process for competitive bidding and help to curtail bribery and 
corruption. 

10. Trade-Related Investment Measures 

The WTO Agreement on Trade-Related Investment Measures is the thinnest of 
the WTO Agreements. Attention should be given to strengthening its provisions. 
One of the critical areas for discipline is the imposition of trade-related investment 
measures, such as mandatory technology transfer requirements on foreign investors. 
Such requirements are trade distortions and can often render new investment im- 
possible. 

11. Antidumping 

The WTO Anti-Dumping Agreement is designed to provide protection against un- 
fair practices by exporters. The Uruguay Round negotiations struck a careful bal- 
ance and, while there may be ways to improve the Agreement, it would be a mistake 
to reopen the Agreement when there are so many other trade issues of more press- 
ing importance. By keeping Anti-Dumping off the table, the WTO can avoid recon- 
sideration of very controversial matters that would distract negotiators from a con- 
sensus building process. 

12. E-Commerce 

E-Commerce does not necessarily require unique trade rules, but because of the 
importance of this new sector to economic efficiency and growth, the WTO should 
give specific attention to it. A top priority at the Ministerial should be to make per- 
manent the standstill regarding tariffs on electronic transmissions. Another objec-